Is it worth it to start an LLC before you've gotten success?

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I'm looking for a side hustle that I can eventually turn into a new career. Affiliate marketing has been on my radar since college (that was 10 years ago!), but I was never able to make it work. I'm in a much better place now, so I can definitely pour the time and energy necessary into this. I'm especially interested as I believe the economy is about to get worse and I may end up losing my job next year.

All that is to say, for someone in my position, is it worth it to start an LLC before I know if I'm going to be able to succeed at this? If nothing else, I could write off the costs of tools and advertising and hosting costs. Unlike many people starting AM, I have some capital I can invest. Is it harder to switch to an LLC later once I've got some minor success under my belt?
#llc #start #success #worth
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  • Profile picture of the author onlineworker11
    You could wait a while until you made some money. On the Otter hand it is Always good to have An LC set up. If youi are determined to succeed then you should not have doubts about succeeding.
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  • Profile picture of the author savidge4
    Originally Posted by playboar View Post

    I'm looking for a side hustle that I can eventually turn into a new career. Affiliate marketing has been on my radar since college (that was 10 years ago!), but I was never able to make it work. I'm in a much better place now, so I can definitely pour the time and energy necessary into this. I'm especially interested as I believe the economy is about to get worse and I may end up losing my job next year.

    All that is to say, for someone in my position, is it worth it to start an LLC before I know if I'm going to be able to succeed at this? If nothing else, I could write off the costs of tools and advertising and hosting costs. Unlike many people starting AM, I have some capital I can invest. Is it harder to switch to an LLC later once I've got some minor success under my belt?
    If the expense of the LLC is not a burden... by all means, yes set one up. Sounds like you understand the tax benefit of doing so. And having the structure in place, today may be affiliate marketing but a year from now it could be consulting...you can use the same LLC.

    Hope that Helps!
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    • Profile picture of the author dave_hermansen
      Originally Posted by savidge4 View Post

      Sounds like you understand the tax benefit of doing so.
      What, exactly, is the "tax benefit" of setting up an LLC? An LLC is a pass-through business entity with the IRS so there is zero tax benefit vs. a sole proprietorship.

      The ONLY thing the LLC gives you is a legal entity that separates you, personally, from liability and creditors - something that really doesn't come into play with an affiliate website unless you are knowingly publishing blatantly false information that leads to an injury. Chances are, even in that case, lawyers will go after the bigger pockets, which would be the actual supplier or manufacturer of the products.
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      • Profile picture of the author savidge4
        Originally Posted by dave_hermansen View Post

        What, exactly, is the "tax benefit" of setting up an LLC? An LLC is a pass-through business entity with the IRS so there is zero tax benefit vs. a sole proprietorship.

        The ONLY thing the LLC gives you is a legal entity that separates you, personally, from liability and creditors - something that really doesn't come into play with an affiliate website unless you are knowingly publishing blatantly false information that leads to an injury. Chances are, even in that case, lawyers will go after the bigger pockets, which would be the actual supplier or manufacturer of the products.
        Not that I am an accountant... not that you should listen to a word of advice I have to offer - please refer to a CPA for advice on these types of topics as they may pertain to you specifically based on your geography and personal circumstances.

        When it comes to real assets an LLC is a lot cleaner than a SP ( Sole Proprietorship ). Getting into 2 vehicles or more... or real estate or even large dollar equipment, writing those off with in an LLC structure is far less a red flag than with the SP.

        It is my personal opinion... that setting a business name, opening bank accounts and doing all of the right things a new business should be doing.. the minimal added expense of an LLC structure is worth doing from the get.. vs figuring this out later... transferring a properly documented and licensed SP to a LLC later is a bit of a pain, and the cost far excedes the upfront cost of just starting with the LLC.

        I could list off a number of advantages... I set my LLC structures as Corporate and hold all the tax liability at the LLC side of things, and then "Stipend" across personal payments ( tax free on the receiving personal end ), leaving the tax liability at the LLC level where all of the deductions are ( gains, losses, Asset purchases, Business operating expense ) when you are dealing with gross revenue of less than $75,000 you are also paying a lower Corp rate vs the personal income rate

        Another advantage is Credit... Credit with an LLC is separate from personal Credit.

        There ARE advantages... A CPA could better instruct you on the actual structure and the advantages of the 2 primary options.
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      • Profile picture of the author lvvheights
        If you make a sale and then form the LLC a few days later, can you still face issues?
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  • Profile picture of the author Kay King
    I've always thought the LLC was to protect your personal assets from liability of the business.


    If you have physical customers, employees, etc, LLC makes sense - I don't see that it's necessary for affiliate sales.



    If you are seriously setting up AS A BUSINESS - would be smart to pay for 1-2 hrs of time from a lawyer who specializes in business startups or small businesses....and get the right answers for your business and for your state.
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  • Profile picture of the author playboar
    This is all really good information. Thanks, everyone!
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  • Profile picture of the author dave_hermansen
    savidge4 - You list lots of great reasons for many types of businesses, none of which pertain to an affiliate website. My advice was based purely on the fact that it is for an affiliate website.
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    • Profile picture of the author Haroon Ballim
      Originally Posted by dave_hermansen View Post

      savidge4 - You list lots of great reasons for many types of businesses, none of which pertain to an affiliate website. My advice was based purely on the fact that it is for an affiliate website.
      Ideally this question should be posed to Accountants or Tax Specialists . A Finance Forum of sorts . Posting this type of question to members of an internet marketing forum is probably going to leave you with a range of answers , many of which will not be suitable or speaking from a Tax Knowledge perspective .

      I would suggest you seek out a Tax specialist . Also be sure that you really want to actively get into affiliate marketing rather than just dabble . An LLC has annual Fees , whether active or inactive . In addition you will need to submit tax returns even if your entity has not been active . Did you consider what costs you are willing to incur to market your Affiliate products ?
      Affiliate Marketing has gotten extremely competitive
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    • Profile picture of the author savidge4
      Originally Posted by dave_hermansen View Post

      savidge4 - You list lots of great reasons for many types of businesses, none of which pertain to an affiliate website. My advice was based purely on the fact that it is for an affiliate website.
      Where I live... the cost of a LLC is $115 to set up ( $100 for the LLC, and $15 for the name ), and $25 a year there after. Setting up a "proper" SP ( Again in my State ) is $25 + the $15 name fee and then $25 a year there after.

      The upfront cost is what I would consider as minimal, and begs the question why wouldnt you?

      The tax rate for income $75,000 and less as an LLC is a set 21% BUT having a pass-through LLC would allow for a QBI ( qualified business income ) deduction, that could be up to 20% of the business' Net Income. If you understand the rules, and "qualify" as such your business tax liability falls to 16%.

      In regards to an SP, the tax formula becomes easy enough but more complicated... and there are no added possibilities for deductions ( QBI ) 10% tax rate for income between $0 and $10,275. 12% tax rate for income between $10,276 to $41,775. 22% tax rate for income between $41,776 to $89,075.

      Like I said before I was just scratching the surface of the benefits of an LLC... and of course it depends on a number of personal situation type variables.

      It really is not a simple because you are just doing X do one or the other... but I would suggest that probably 9 times out of 10 times for a SMALL business, there are added benefits to an LLC structure.
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  • Profile picture of the author dave_hermansen
    Straight from the IRS website ...

    "QBI Component. This component of the deduction equals 20 percent of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate. "

    Yes, an LLC is a pass-through entity allowing you to file as a sole proprietor. I am only pointing out that the QBI component is the same for both and not an advantage for either.
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    • Profile picture of the author savidge4
      Originally Posted by dave_hermansen View Post

      Straight from the IRS website ...

      "QBI Component. This component of the deduction equals 20 percent of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate. "

      Yes, an LLC is a pass-through entity allowing you to file as a sole proprietor. I am only pointing out that the QBI component is the same for both and not an advantage for either.
      So lets call it for what it really is, it is technically a section 199A type deduction. I cant find a direct clarification with IRS documentation.. however, I present ( https://quickbooks.intuit.com/r/taxe...99a-deduction/ )

      The 1st key point states "It shelters pass-through income" You have to keep in mind that an LLC by default is a "Partnership" - even a single member LLC ( keyword being "Member" ). The pass through itself would be going to a "Sole Proprietor" ( Schedule C ).

      I will say this again... by all means dont take my word for it.. consult a CPA in regards to things like this... I can say, I do have structures set up like this - but that may or may not apply to my specific circumstances - I have these set up as single member LLC's as well as multiple member LLC's - basically an LLC is an LLC regardless of member count.

      And I am really not trying to argue here... Im just communicating based on my own experience and how over the years learning more and more about tax code - by people that know far more than I do - how to actually make the tax code work for you ( as a small business )

      The system is REALLY broken..and the more you learn... the more you can take advantage of the broken aspects - and there are a lot of them.
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  • Profile picture of the author Ryan Schneck
    I formed an LLC for my business back in 2019. I wasn't making a substantial income at the time but felt that I should set things up properly for the long term. You should also consider setting up a bank account that is for the business only. The bank account makes it easier down the road to separate personal expenses from business expenses. Once you form your business entity you can start building your Paydex score which is your business credit score. This way once you start building business credit you can use it to fund your business instead of using your own personal funds.

    The list actually goes on and on as to the benefits surrounding the proper formation of your business. There is an initial cost to set everything up and get all of the paperwork done but it is well worth the investment.
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