Ways to Structure Your Business
Ways to Structure Your Business
You are ready to start your entrepreneurial business! (Cue the trumpets and cheers!)
But, how you structure your business will impact your taxes and the money that stays in your pocket!
Taking time in the beginning for the proper setup means you can focus where you shine more and have less stress later!
Here are your some of your options:
Sole Proprietor
LLC (Limited Liability Company)
LLC as an S-Corp
There are other business structures but these are the ones relevant to entrepreneurs.
Okay, let's break these down!
Sole Proprietor
For taxes, you use your SSN (social security number) and a schedule C form.
If you don't want to give your SSN to suppliers and clients, you can get an EIN (employer identification number). It's super easy, all online, and FREE through the IRS!
This is the easiest one to setup, however, if a client sues your business, all of your personal accounts are vulnerable.
The other important thing to note with sole proprietor - you are the only employee!
Limited Liability Company
The LLC has a little more setup and some cost, but, provides a little protection to your personal bank accounts in the event you are sued.
Not meaning to scare you with all this talking about suing. It is one of those things that we hope never happens, but it's wise to protect against.
LLC is registered with your state. The cost varies from state to state. And there may be an annual fee. Check out your state's website on how to do this. Most states you can do this all online!
You will need an EIN for your LLC. Again, super easy on the IRS website!!
Next, you will need a separate bank account. The bank will want your LLC paperwork and EIN certificate. Depending on your bank, there is usually a minimum deposit to open an account.
As for taxes, it is still filed with your personal taxes and a schedule C form.
Also, an LLC can have employees. But, it is still cool if it is just you.
LLC as an S-Corp
The S-Corp takes a lot more work, but if your company is making a lot of money, you could save thousands on self-employment taxes.
The setup with the state, EIN, and bank account is the similar to the LLC. Make sure the S-Corp box is check where applicable! And like an LLC, you can have employees or it can just be you.
The main differences and work comes with how you keep your records and file taxes.
You must keep clearer accounts and balance sheets with info on owner's (and others) investments.
For taxes, the business files separately from your personal taxes. Your business files a 1120 return. And owners get profits transferred to them via a K1.
With the S-Corp there are potential cost savings but more responsibility and returns are needed so it's important to look in to whether it's beneficial for you.
Are you still not sure which structure will work best for you?
The question to ask yourself - how much money will your company make realistically?
If the answer is maybe a couple hundred dollars here and there - it may not be worthwhile to pay for an LLC as there is a fee to setup and some states have annual fees. Unless, you have make enough money from other sources and/or own properties/cars - then you are worth protecting! (psst - you are always worth it!)
If your company makes a couple hundred to a couple thousand dollars each month, LLC is a great place to start. And once you company grows and makes more money, you can convert to an S-Corp (if the benefit is there!).
We are here to help guide you through this process. And we really shine at getting your accounts setup (and maintained) to make taxes easier!