Posted on 08/18/2022 12:16:21 PM PDT by Eccl 10:2
It's just me in the business so I can help a friend who is a building contractor. 5-10 hours a week.
So I don't want to pay large setup or annual fees.
I just don't want 87,000 heavily armed IRS agents battering my door down.
I'm in North Carolina if that matters.
Home office; sole proprietorship; independent contractor ... being in California you should obtain a business license from your city or county to make your “independence” official. Many firms will ask for confirmation.
If the person looking to be a tax consultant didn’t know that stuff….
In that case, you can kill a lot more of them than they can of you simply because there would be a lot more of them than you.
Incorporation generally brings in more state than imperial entanglements.
I bought a number of books regarding incorporating, and then set up the company myself. If you have doubts, just hire an attorney.
I presume you already know how to do accounting. Hopefully, you will not pursue such a business unless you already know how. Filling out tax forms correctly and making the quarterly deposits will keep the tax boys off your lawn.
True on the business license. Sole proprietorship, LLC or S-Corp would all need a business license from the city/county.
Exactly what you said.
Later.
Once you become an actual company, you’ll find the government at various levels wants money out of you. Therefore, just go word of mouth and work without being a standard corporation. Only if you get big enough should you incorporate.
Free advice on Free Republic? What could go rwong?
You never know when there might be a CPA on FR.
The importance of an LLC is in the name: LIMITED LIABILITY. If you get sued they can only go after the assets of your LLC, not your home or your life savings. A sole proprietorship exposes you to unlimited personal liability.
The single-owner LLC acts exactly the same as a sole proprietorship for tax purposes. It gets "disregarded as a separate entity" by the IRS: You file the same Schedule C, make the same business expense deductions, etc. The only difference is you add the name of the LLC to the form.
For the liability protection to work you have to carefully keep all your business transactions separate from your personal spending. Otherwise in a lawsuit they could try to "pierce the veil" to go after you personally. Open a separate bank account under the name of the LLC and use it exclusively. Get a Visa debit card for the bank account. (Never use a personal credit card.)
As an extra benefit if your business gets audited by the IRS you can easily show all your business transactions by just giving them the business bank statement, keeping your personal transactions private.
For 5-10 hours a week with a singular customer, why not just go W-2 employee?
I work full time as a company accountant and have a bookkeeping business on the side. Very simple.
You can always open a separate bank account for your sole proprietorship business. I would recommend it for anyone starting a SP. Also set up a separate company file in your accounting software. And keep all transactions separate.
Since the SMLLC files a Schedule C on the personal tax returns, it is combined with all other personal taxes if ever audited. If the IRS wants to audit the SMLLC, they will need the taxpayer’s Form 1040, including the Schedule C.
There might be some legal liability protection of a SMLLC, but not for tax purposes. Working 5-10 hours a week for a friend in accounting may or may not necessitate legal protection. That would be up to him to decide.
If you have no foreseeable liability for damages caused while conducting your business, why bother with incorporation? Just track your profit/losses, expenses, revenue, etc., to make sure your accounting is perfect for your annual return (or quarterly payroll tax payments). Best to set up separate accounts for the business activities, even if under your own name.
You can get a 2mm+ umbrella policy to cover yourself w/o the incorporation.
Btw, if you do incorporate, you are on the public record in your state and you’ll get scumbags trying to sell you sh* all day long.
Good luck!
I’ve been through multiple iterations of businesses over the years. The easiest way to get started is a sole proprietorship. As business circumstances change, regulations, tax code, and any liability considerations change you can quickly change forms of business. In the past, I started a consultancy as a sole proprietor. That morphed to an S-Corp after adding employees and a crackdown by the IRS on my customers. Basically, the IRS wanted my customers to treat me as an employee. Later I dropped the S status for the business to be a normal corporation. That had to do employee benefit plans and executive (me) plans. I had a competent CPA, lawyer and banker that guided me along the way. The key is to have reasons to change forms of business. Most of the time you will find the government forces you into those decisions. Weigh alternate decisions against the profit you make under each form of business.
That was excellent. Thank you!
I’m not a tax guy. I’ve always been in larger companies and never had to deal with the administrivia like this.
I write only a handful of checks monthly and the $300 bonus from the bank paid for the DBA filing, business cards and a nice business size set of checks and book with about $180 to spare.
Good question, but it’s possible that down the road I could work for other businesses.
In Auburn (CA) a business license for a home consulting business (no inventory, etc.) is 110 bucks ... not a big deal and simple to get.
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