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Taking The Leap ...Do I Need An LLC?

by DNChamp
27 replies
Ok soon ready to start to offer services to businesses around me and far away (if they find me) for SEO services. I have one client under my belt with a few more lined up from my wifes design job.

To kind of make it "official" im guessing I got to take this as a real business and get an LLC? Or do i?

Most if not all the companies I will be dealing with im sure are going to write my services off as an expense which in turn they will advise the irs that they used me for service. To not get in trouble I will report earnings from this and what is the best way to do that?

I assume this type of business is not done under the table :confused:

Any help to point a noob how to get the business "legit"
#leap #llc #taking
  • Profile picture of the author PhilaPM
    You don't need an LLC to do business. They can still write off the expense, you just claim any income on your personal tax return. Even if you setup an LLC the income would still be reported on your personal tax return. Talk to an accountant if your not sure what your doing.

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  • Profile picture of the author Aaron Doud
    LLC is for liability protection.

    It is merely a shield that surrounds the business and protects your personal assets. And even than as a sole owner you might be liable if you do something stupid.

    Start the business without the LLC and if it does well get it done in a few months. Or if you know the business will be good and have the capital do the LLC now.
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  • Profile picture of the author J R Salem
    I recommend you do the LLC man. Even though it may not be necessary, I found it helped me take my business that much more serious.

    If you don't have it, everything is kinda "half-ass" in my opinion. You may not be as motivated.

    Getting the LLC, tax id for your biz, etc will force you to do this right.
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    • Profile picture of the author DNChamp
      Originally Posted by Jeremy S View Post

      I recommend you do the LLC man. Even though it may not be necessary, I found it helped me take my business that much more serious.

      If you don't have it, everything is kinda "half-ass" in my opinion. You may not be as motivated.

      Getting the LLC, tax id for your biz, etc will force you to do this right.
      I was leaning towards this just to put me in the attitude of a "business owner" but with this AND a regular day job im sure I got to change my tax structure so I dont make more then I claim. Do they have any place where it will show you say if you make $50,000 a year you should claim this as far as taxes goes?
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  • Profile picture of the author Aaron Doud
    Talk to a CPA

    get tax advice
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  • Profile picture of the author iAmNameLess
    If you need tax advice, I have a friend who is great, PM me and I'll have him get in touch with you.

    I wouldn't necessarily recommend llc... if you wanted to split things up between personal and business I would suggest starting as an S-Corp.
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  • Profile picture of the author Aaron Doud
    Yes but you can run an LLC multiple ways. LLC is just cheaper in most states vs. normal corp but you can run it like a corp, a partnership or single owner.
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    • Profile picture of the author iAmNameLess
      Originally Posted by lordauric View Post

      Yes but you can run an LLC multiple ways. LLC is just cheaper in most states vs. normal corp but you can run it like a corp, a partnership or single owner.
      I'm sorry, I don't understand what you're saying, it is so far off.

      LLC is more expensive in almost every state compared to a normal corp or S-Corp.

      You can also run an S-Corp with one person having all officer roles, or as a partnership but as a separate entity. Not sure why you think LLC would be better? Overall, LLC is the least flexible option.

      Also, you can not run LLC as a corp, since LLC has no stock.
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  • Profile picture of the author George Curtis
    There are some good sources online that explain the advantages vs. the disadvantages of the different types of structures.

    Personally, I think you should get an LLC.

    SEPARATE your business funds from your personal funds for sure. Do not co-mingle them if you can.

    When you start to do better... hire J.J. Childers (Google him). He is a tax advisor to many successful internet marketers.

    Good luck.
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  • Profile picture of the author Aaron Doud
    Limited liability company - Wikipedia, the free encyclopedia

    "Check-the-box taxation. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility."

    And I have no idea which states have normal corps cheaper. It's something the OP would have to look into. As LLC and Corp laws vary by state.
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  • Profile picture of the author George Curtis
    If you are going to get an LLC... do not get one in Nevada.

    They USED to be pretty good for that, but they have gotten so money-hungry that their fees have gone WAAAY up.

    I hear Montana is starting to be a great place for LLCs.

    (You can get an LLC in another state than the one in which you live.)
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    • Profile picture of the author iAmNameLess
      Originally Posted by George Curtis View Post

      If you are going to get an LLC... do not get one in Nevada.

      They USED to be pretty good for that, but they have gotten so money-hungry that their fees have gone WAAAY up.

      I hear Montana is starting to be a great place for LLCs.

      (You can get an LLC in another state than the one in which you live.)
      Nevada wasn't ever used because of their fees. They were used because of the corporate veil and no state income tax. Same with delaware. Montana is making progress, but wyoming is really moving forward. I still wouldn't ever do an LLC though. Limited growth opportunity. I think in Nevada it will cost around $525... when a corp would be about $150-200.
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      • Profile picture of the author xDennis
        I'm not a CPA, however I have my fair share of business experience and dealing with CPA's..

        For this business (assuming it's just going to be you?) an LLC will end up and cost you more then a sole prop.

        Advantage of LLC is just that, to limit your liability. However, if you do mess something up and have some litigation facing you, as a "general manager" they CAN come after your personal assets.

        Additionally, with a sole prop, you don't have to co-mingle. You can still open business accounts, get business debit cards, credit, etc.. no problem so you won't be co-mingling of funds. You will get a EIN #

        Furthurmore, with an LLC, depending on your state, you will have to pay yearly feeds to maintain the liability, can be near $1,000/yr

        With a sole prop you don't have these fees.

        If you do plan on going big time, you can always change the business structure.

        Starting out, sole prop is the way to go. Much easier to file taxes, (Schedule-C), etc..

        Good luck!
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  • Profile picture of the author godinu
    xDennis and others, thanks for the sole proprietorship info. I'm in the same boat and have decided to go the sole propietor route, but there seems to be more than one way to do that as well. You can file for a trade name in your state (in my state it costs $50) to protect your company name from others snagging it, and apparently u can still use your own EIN/SSN for the income earned from that business. Or you can file for a separate EIN for the biz, for free. Either option allows you to open a business bank account with a business name.
    Just wondering the pros and cons of either way (using your social or getting a separate EIN), since some of the company money would end up paying u, the company owner, anyway.
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  • Profile picture of the author xDennis
    If I were you, I would get an EIN. Most Banks won't allow you to open a business account without a EIN, even if you are going to use your SSN.

    Also, having an EIN, you can start to establish business credit, yes you can also do that with SSN, but it's better with EIN. (Reduce co-mingling) If you want a large line, they may still ask for some collateral (personal asset)

    At the end of the day, Sole Prop with EIN is a winning combination, again you can always change your structure down the line.

    For professional help, I'd suggest contacting a local CPA, they are cheap for initial consulting, but they know the local laws, and fees, and all that good stuff.

    Good luck!
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    • Profile picture of the author iAmNameLess
      Originally Posted by xDennis View Post


      Also, having an EIN, you can start to establish business credit, yes you can also do that with SSN, but it's better with EIN. (Reduce co-mingling) If you want a large line, they may still ask for some collateral (personal asset)

      This is what I used to specialize in. I ran a service for incorporating businesses and helping them establish business credit. Unfortunately as a sole proprietor, using your SSN will definitely cause problems to your personal credit. An EIN can help a sole prop but the problem still remains that you don't separate yourself and your business. Banks take those that incorporate, more seriously than those who spend the $30-50 to start their business.

      There are many advantages to incorporating, and frankly, I don't see why anybody in their right mind would not do it unless they just didn't have the money. If they didn't have the money, then they should question the longevity of their business anyway.

      Sorry, but even if you have a contract when you offer your services, if something goes bad you can definitely be sued for potential damages. Contractors can put clauses in the contracts that states they are not responsible for damages and blah blah, but the reality is they can be. These businesses can sue you for hundreds of thousands. As a sole proprietor, do you want that responsibility to have to personally guarantee and pay that money or would you rather have another entity for your protection?

      I just don't see ANY cases where a sole prop, or partnership are a winning scenario. Incorporate my friend, and you will be ahead of a lot of your competitors.

      It isn't really an accounting issue itself... its more of a business security and legal issue. As a sole prop you're still paying 33% federal, corps though pay 35% an S-Corp your corp profits will be passed as personal income so it makes more sense. Do a bit of research on it and come to your own conclusions. However, if you incorporate, you can easily build business credit, with no personal guarantee within a year. It is the way to go overall.

      The question shouldn't be, do I need an LLC or should I stay a sole prop.

      The question should be, do I need an LLC, S-Corp, or C-Corp. LOL.
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  • Profile picture of the author wordydiva
    Talk to a CPA before you jump into anything. Chances are you don't need a LLC right now, but it is good that your thinking about all aspects of your new business.
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  • Profile picture of the author IdrisSG
    I'd suggest that you GET a real business.

    LLC or otherwise, something solid, something real. This serves two purposes:

    (1) Increase your "legit-ness" to businesses buying from you

    (2) Make you more feel more invested in your services

    You've got a name to uphold, a brand to build, systems to create people to hire, its an exciting time.








    Originally Posted by DNChamp View Post

    Ok soon ready to start to offer services to businesses around me and far away (if they find me) for SEO services. I have one client under my belt with a few more lined up from my wifes design job.

    To kind of make it "official" im guessing I got to take this as a real business and get an LLC? Or do i?

    Most if not all the companies I will be dealing with im sure are going to write my services off as an expense which in turn they will advise the irs that they used me for service. To not get in trouble I will report earnings from this and what is the best way to do that?

    I assume this type of business is not done under the table :confused:

    Any help to point a noob how to get the business "legit"
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  • Profile picture of the author David Miller
    I have had an S Corp, LLC and SP and I'll take SP any day of the week. There is no particular advantage other then supposed liability protection. I say supposed because if someone is hellbent on a lawsuit, there is always a way. Unless you anticipate a minimum 6 figure income, and a couple of employees, it's simply not worth the bother.

    Business people look for results and I have never in my experience been turned away because of my company status. They buy based on price and product delivery, and they are not interested in how you file your taxes. In the end, that's all it is, how you file your taxes!

    When I had my first Sub S I had an endless barage of forms from the feds and the state and they try to squeeze every penny they can. Even when you decide to shut down the Sub S or the LLC it requires a nightmare of paperwork. By the way, there are fees to the state to shut it down, and if you think you can just close the doors, think again! Unless you close it appropriately there are tax liabilities that are at the discretion of the "clerk" assigned to your case, and even after the state takes it upon themselves to "close by proclamation" they still come after you for back taxes EVEN though you don't show income. I'm speaking from experience!

    Based solely on your initial post about wanting to look "official" you should ask yourself this question:
    Have you ever made a business decision based on how someone files their tax returns?

    If you can deliver a good product, if you really can get your clients ranking higher in Google, they won't care if you operate out of the back of your car.
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  • Profile picture of the author Lmr1
    Nice post David Miller....I agree 100%. I also went sole prop. It works for me! Nicely put! There are pros and cons to everything in life. Do what is best for you and your situation.
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  • Profile picture of the author xDennis
    IamNameless,
    Are you a CPA? Fiance? Just curious. I disagree on some of your points, and is reason why the OP needs to seek professional consultation.

    What I disagree on:

    You suggest that having a LLC, you are protecting your personal assets from litigation. This is clearly False, you kind of hinted at it, but you also implied that the LLC you had better protection..not true.

    You suggest that banks will show favor to your LLC in regards to credit. Well this is not entirely true. Banks care more or less about the ability to repay the loan. (especially in low risk businesses) A sole prop that generated 500k in revenue will be able to secure more/better debt then a LLC generating 200k in revenue (based on revenues only for comparison purposes, of course if the LLC had 700k in marketable securities that changes things..)

    You also suggest that within a year, a LLC can secure loans with no personal guarantees. Again, this all depends on the amount of loans. I have conducted valuations for LLC's that sought out more debt. As you know, the cost of equity could be more then the cost of debt. These companies had been standing for years and still could not secure a line for 250k despite fairly decent revenue and little debt.

    In the same token, if you're a sole prop seeking a line of 50k and you can prove solid financial strength, you can secure these lines with your EIN. Can you secure a line of 500k? Again, this depents but most likely not, but you have to consider the average income of sole props. They are not seeking massive lines. And if they are, then yes.. they should have a different business structure.

    David brings up another point, closing an LLC is a headache. For a single owner small biz start up that is in a low risk category, a sole prop is sufficient.
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    • Profile picture of the author iAmNameLess
      Originally Posted by xDennis View Post

      IamNameless,
      Are you a CPA? Fiance? Just curious. I disagree on some of your points, and is reason why the OP needs to seek professional consultation.

      This isn't just a financial issue, it isn't just something you need to consult a CPA on, but an attorney.

      What I disagree on:

      You suggest that having a LLC, you are protecting your personal assets from litigation. This is clearly False, you kind of hinted at it, but you also implied that the LLC you had better protection..not true.

      Absolutely incorrect. Having an incorporated business you have a corporate veil. You have a LOT better protection, if you disagree with this then you have your information wrong. This isn't my opinion, it is legal fact.


      You suggest that banks will show favor to your LLC in regards to credit. Well this is not entirely true. Banks care more or less about the ability to repay the loan. (especially in low risk businesses) A sole prop that generated 500k in revenue will be able to secure more/better debt then a LLC generating 200k in revenue (based on revenues only for comparison purposes, of course if the LLC had 700k in marketable securities that changes things..)

      Banks do show favor to corporations over sole proprietors. One, as a sole proprietor you do not have a separate entity. Usually you will have to provide your own ssn for anything related to credit. It is easier to build business credit as a corporation because half these creditors will report on your personal file instead of business. As a corporation having a different entity, it is MUCH easier to build credit. Also, sole proprietors have issues because of the amount of credit checks being run. A business can have their report checked 10 times in a month and not hurt the paydex score, while a sole prop can do the same and lose quite a few points on their own score.

      You also suggest that within a year, a LLC can secure loans with no personal guarantees. Again, this all depends on the amount of loans. I have conducted valuations for LLC's that sought out more debt. As you know, the cost of equity could be more then the cost of debt. These companies had been standing for years and still could not secure a line for 250k despite fairly decent revenue and little debt.

      I used to run a business credit consulting firm, and I can tell you that everyone that used our program was able to have lines of 150K with no guarantee.

      In the same token, if you're a sole prop seeking a line of 50k and you can prove solid financial strength, you can secure these lines with your EIN. Can you secure a line of 500k? Again, this depents but most likely not, but you have to consider the average income of sole props. They are not seeking massive lines. And if they are, then yes.. they should have a different business structure.

      Look, I don't want secured loans, I have my own credit for that. I don't want to have to personally guarantee anything, that is why I recommend a corporation.

      David brings up another point, closing an LLC is a headache. For a single owner small biz start up that is in a low risk category, a sole prop is sufficient.

      $25-100 fees in most states to close it down.

      If you don't take yourself seriously enough to protect yourself and your business, or you are just a basic start up with limited funds to test the waters, you're right a sole prop is right for you. If not, then it is always better to incorporate.


      Well, I never said any of that but I did say that about S-Corps. Answers are in bold.

      This isn't just an answer based on taxes... you have to understand there are many more issues. Legally, and just having good business sense.

      You all can disagree all you want, but overall if you're wanting some expansion and you have big goals, you hurt yourself by not incorporating.
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      • Profile picture of the author xDennis
        I suppose my years of formal education and time at BcG has proven me wrong. :rolleyes: I'm not interested in a pissing contest. I'm just informing OP that 1) LLC's don't protect you as much as people lead them to believe.. 2) You don't need a LLC to get a line. 3) there is nothing wrong with being a sole prop with a EIN in this business.

        Originally Posted by iAmNameLess View Post

        You all can disagree all you want, but overall if you're wanting some expansion and you have big goals, you hurt yourself by not incorporating.
        I do agree. If you have plans on going big, incorporate. But - don't let that stop your momentum of starting a business either when there are alternatives.
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  • Profile picture of the author CoachMikeH
    To protect your personal assets, I would form an LLC. You need to be legit and protected and it is relatively inexpensive with legal zoom or your local government.
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  • Profile picture of the author writersparadigm
    You don't need an LLC to do business but I would ask you talk to an accountant if your not sure what your doing. Thank you
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  • Profile picture of the author SoCalMarketing
    @xDennis and David Miller.. having had multiple small businesses and tried both SP and LLC, I fully agree with both of you.. SP was the best solution for me as a small business owner. There are plenty who advise on the LLC, S corp route but I found it extremely cumbersome to do anything other than Sole Proprietor, escpecially when you start out, it is simple, you can operate as a viable business with a DBA and separate EIN, your costs will be much smaller and for me the simplicity of it was a huge selling point.. my LLC kept hounding me for years after I decided to cease operating it, as David Miller mentiones, it is a paperwork nightmare, for a small business, and I mean a small business with one or two people, the hassle of LLC or S corp not worth the benefit by a long shot. great points made by both of you..
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