Posted by OR on 12/8/10 11:02am
Poll. How many are LLC or Sole Proprietor
I am thinking of changing my business to a LLC? I was just wondering how may of you are an LLC or are you a Sole Proprietor? TIA
Reply by BestFlCloser on 12/8/10 1:10pm
Reply by taxpro on 12/8/10 1:27pm
LLC, but laws vary by state. Do some checking... n/m
Reply by OR on 12/8/10 1:52pm
Re: LLC, but laws vary by state. Do some checking...
I did check my state laws. I know that it is protecting. It's also easy to do. I was wondering because I will have to make changes to my Bank account and the IRS. It seamed to be a lot of work to to change everything over. I was thinking that maybe the E and O would be enough.
Reply by taxpro on 12/8/10 2:21pm
If it's advantageous in your state, go for it...
Yes you'd need to add "LLC" to your business name, so you'd want to put that on your bank account. You don't necessarily have to change other items such as your business cards, stationary, or advertising. You could be "Jane Smith Signing Agent, LLC doing business as Jane Smith Signing Agent."
If it's a single-member LLC, you're considered a sole prop for tax purposes and wouldn't need a new tax ID number. If multi-member, you'd need a new one for your partnership or corp. You should have a tax ID number anyway, so you don't have to give out your SSN. Getting a tax ID number online is easy and takes about 5 minutes.
If you have a single-member LLC, you'd still file your tax return the same way as before, i.e. Schedule C, SE, etc. on Form 1040. An LLC is a "disregarded entity" for income tax purposes. The tax return is filed according to the type of underlying entity that was set up. If a single member, it's a sole prop. If multi-member, it's either a partnership or corporation, whichever was set up.
Reply by OR on 12/8/10 2:40pm
Re: If it's advantageous in your state, go for it...
I do have a tax id number. It is single-member. Thank you for all the information. I do have a Tax Id Number. So it would only change the Name to an LLC with the state and the bank. That is a lot easier then I thought. Thank you Taxpro.
Reply by ikando on 12/9/10 2:19pm
Re: If it's advantageous in your state, go for it...
taxpro, isn't it true that an individual can also be an S-Corp? It doesn't seem to be tax advantageous as you would have to pay both corporation and personal taxes, but that is an option for "protection", right?
Reply by taxpro on 12/9/10 5:59pm
Yes, a sole shareholder can have an S-Corp which also provides limited liability protection. An S-Corp does not pay income taxes itself, as it is a pass-through entity. The net income is passed through to the shareholder and reported on his/her personal tax return. However, the shareholder must be paid at least a reasonable salary through payroll, have Social Security and Medicare tax withheld, income tax withheld and receive a W-2 just like any other employee. If you don't have other employees, it's a huge PITA. Also, you must file quarterly and annual payroll tax reports. Fringe benefits such as health insurance paid for shareholders who own more than 2% are not deductible by the S-Corp, but must be added to shareholder's income on the W-2. The shareholder can deduct it as self-employed health insurance. The S-Corp must file a separate tax return, and you must track your basis in the corp which is not as easy as with regular stock.
The main reason most people have formed S-Corps is to save Self-Employment Tax, AKA Social Security. You are supposed to pay yourself at least a "reasonable" salary, withhold Social Security, Medicare, income taxes, and put it on a W-2. The remaining net income is "passed through" to the shareholder and reported on Schedule E, page 2, and is not subject to SE tax. So they pay themselves an artificially low salary, pay very little social security, and let the rest pass through with no social security or SE tax.
The IRS is not stupid, and long ago they figured out the scam that many people were running, but so far they have been unsuccessful in closing the loophole. Paying a salary to yourself that is less than "reasonable" is against the rules, but who's to say what is reasonable? It depends on facts and circumstances, and you must be prepared to defend your position if audited.
They tried to get a bill passed in 2009 that would make all pass-through income from S-Corps be subject to SE tax, but it didn't go through, at least not that time. They will keep trying, and it will probably eventually pass. My feeling is that you might as well save yourself the trouble of the S-Corp and just have a single member LLC. You still have the benefit that notary fees are exempt from SE tax (not signing & travel fees).
Also, I've seen many people come to me after making huge tax and accounting mistakes after setting up S-Corps because they had no clue about the payroll taxes, the filing requirements, etc. They ended up paying more in penalties, bookkeeping and tax prep fees than they saved. Look at the whole picture and make sure you know what is involved first, seek the advice of a tax professional you can trust, and not a salesman for a company who makes money setting up corporations for businesses.
This is not legal advice. Best of luck!
Reply by MW/VA on 12/8/10 2:34pm
Both. I filed LLC with the state, but since I'm the only
person involved, it still files as a Sole Proprietorship for tax purposes. To clarify, LLC means Limited Liability Company. Corporations are different altogether.
Reply by Les_CO on 12/8/10 2:46pm
Corporation.....Because I had it..If I were doing it today I'd go LLC.
Reply by kathy/ca on 12/8/10 3:42pm
Many years ago I looked into this and in CA it looked like
there were no benefits to changing over from Sole Proprietorship but maybe what I looked into at that time was being incorporated and not forming an LLC. Can someone from CA jump in and give some input on the subject? Thx!
Reply by taxpro on 12/8/10 3:59pm
not from CA, but...
I believe the State of CA charges an annual $800 franchise fee for taxable entities. There may be other disadvantages.
Reply by kathy/ca on 12/8/10 4:06pm
Taxpro, they do charge that but seems there were other dis-
advantages as well but if the protection is there I guess it would be worth it, BUT how does one know how much liability protection there would actually be in the case of a lawsuit.
Reply by taxpro on 12/8/10 8:14pm
Re: Taxpro, they do charge that but seems there were other dis-
My understanding is that the liability is limited to the assets owned by the LLC, plus any insurance coverage in the name of the LLC. And that's only an issue if you lose the lawsuit. So, let's say that your LLC has $5,000 in the bank, and owns a computer, a desk, phone and printer, all worth about $1,500. Personally, your net worth is $1 million, but that's outside of the LLC. If someone sues the LLC and gets a judgment for $500,000, the most they could get from the LLC is the $6,500 that it's worth. They would have no recourse against your personal assets, at least that's what I've heard.
I am not an attorney, and the above is my personal understanding of the situation. This is not legal advice, and you should consult an attorney in your state, blah, blah, blah.
Reply by OR on 12/8/10 6:02pm
Re: Kathy for me here it is just $100.00
I am not sure yet if the $100.00 filing fee is for 1 year or 2. Assumed business name here is Oregon cost $50.00 for 2 years.The protection an LLC gives is the fact that the Company stands alone. It separates the company from you personal assets. If the business has any troubles no one can go after you personal assets only the business. I think that when I file my business name this time I am going LLC limited Liability Company. The state of Oregon said that my taxes will not change.
Simple Solution Notary Service
Reply by MW/VA on 12/8/10 9:07pm
Re: Kathy for me here it is just $100.00
Yes, here in VA it cost me $100 initially, & $50 to renew. I did the paperwork myself, didn't get one of those legal site kits or anything. I did it to keep the business as a separate entity.
Reply by Pat/CA on 12/8/10 7:16pm
IF I remember correctly...
CA notary laws call for unlimited liability for notaries (that I know) and I believe, regardless of whether you're an LLC or sole-prop, you cannot be released from this by forming an LLC. Ive tried to research it before posting, but cannot find any info using many key words.
However, I see no place in the handbook that gives ANY exception regarding our unlimited liability, thus I believe I'm correct.
Reply by kathy/ca on 12/8/10 7:21pm
Pat, when I looked into this years ago I recall there was
no benefit in doing either a corporation or an LLC for those of us in CA. I know there was a very good reason why I didnt take it further and I am sure it was because it wouldnt release us from liability anyway. Maybe things have changed or maybe I am having incorrect recall but looks like you understand it the same way I do.
Reply by Pat/CA on 12/8/10 7:33pm
Re: Pat, when I looked into this years ago I recall there was
I do believe it's still so. If I remember, when I took a notary class 4 years ago, the instructor was very explicit in detailing that fact. And since I cannot find any info that states otherwise in my research, I believe we're both correct.
I find the fact that some notary laws in other states are so very lax, while CA's are so stringent. For myself, I prefer stringent. I wonder what type of messes other notaries have to clean up in states that are so liberal in their notary laws? For one, I can't believe no journal of record it required in some, that's just mind-boggling to me!
Reply by kathy/ca on 12/8/10 8:05pm
Me too, on the "no journal" issue, I document so much info,
I cant believe "other states" notaries are comfortable w/o all that documentation.
Reply by taxpro on 12/8/10 8:16pm
Oh, that stinks..... n/m
Reply by kathy/ca on 12/8/10 11:04pm
Fees are high but for CA there is protection from liability
according to what I pulled up on the website. BUT, I wonder if this applies to a notary business:
California LLC Fees and Costs
In addition to the $800 minimum tax, an annual LLC fee is imposed based upon total income from all sources reportable to California (range from $500 to $4,000).
Advantages and benefits of forming a California LLC
California LLC members enjoy Limited Liability, which means they are mostly personally protected from any liability of the LLC and successful judgments, as well as from the LLC itself.
Reply by taxpro on 12/9/10 6:46pm
Yes it applies, if an LLC.... n/m
Reply by Jodith Allen on 12/12/10 10:15pm
I'm a sole proprietor, since I don't have any assets to protect. If I ever have assets to protect, I'll go ahead and do the LLC. Until then, there's no point of going to the expense.