|Self Employment Questions?|
I recently started a new business <snip>
My tax lady says I shouldn't even worry about starting an LLC or Corporation for my business to just be a Sole Propriter.
I guess that's fine...but can I still claim business expenses that I fork out myself. I assume I would need to fill out a 1040 with a Schedule C. Could someone correct me if I'm wrong?
Also - how can I make my business name known?
Thanks for the help
[edited by: stuntdubl at 5:13 pm (utc) on July 5, 2004]
[edit reason] No urls, thanks. See TOS [webmasterworld.com] [/edit]
I sort of agree with your tax lady, but on the same token I don't. Do you own a house, car, bank account, or anything else of value. If yes, then you can be sued as a small business owner.
While the chances of this happening as a small web designer may be remote it can happen. From the standpoint of asset protection I would set up an LLC.
I set up an LLC for my own business and it has a separate bank account, set of books, etc. If I get sued for any reason the most they can get is what the LLC owns. My house and other assets are safe. Further my LLC doesn't own anything of value other then the corporate bank account and it rarely has any money in it.
I don't plan on being sued, but just in case I want to know I am protected. However if you choose not to do this you can still file a schedule C for tax purposes and deduct your expenses. I also did this for years without an LLC. Just keep receipts and milage book for driving. You tax lady should be able to guide you on this point.
Welcome to WW!
It costs less than $300 per year to form an LLC or S Corp. It really isn't worth taking on all the liability yourself for this amount of money.
You are not totally safe after forming a company, but you are much safer than you are today.
In several states companies have all sorts of advantages, if you plan on making a good living you should want to be looking at those.
Small time accountants will always want to stay within the realm of what they understand. This can hurt you!
My general advice is:
1. If you plan to make less than $50K per year, sole proprietorship will most likely work to you.
2. If you plan on making between $50K and $300K per year, you need to look at forming an LLC or S Corp.
3. If you plan on making $300K to $1 million per year you need to be an S Corp in an advantageous state. You should also look at more than one company for retirement purposes.
4. If you plan on making over $1 million per year you need to look at offshore companies and trusts.
At each stage you need a different set of advisors that really understand the benefits, laws and loop holes.
My first accountant was a gem, but they couldn't really handle growth, and therefore you have to be prepared to move on to folks that understand the bigger picture as you grow.
With all the different opinions you heard, I would suggest getting a second opinion from a different tax person, and maybe even talking to a lawyer.
The tax person will tell you what is worth doing based on tax laws, while the lawyer will tell you what is best based on the legal liabilities.
If your only reason of looking into this is for tax reasons, then stick with what your tax lady said. If you are also interested in the liability side then get a second opinion, or talk with her again and explain this.
Just keep in mind that even if you form a LLC or Corporation you are not protected 100%. In general if you consult a client wrongly, you can be sued personaly for it, even if you are under the umbrella of a corporation. The example we were given was if I am driving the company car and run a red light...who is responsible for paying the fine, me or the company? Common sense say me, even if it was with a company car on company business.
IIRC, hiding behind a corporation doesn't always help with liabilites from either payroll or taxes.
Thank you this advice has really helped me.
I do plan to make WAY UNDER 50K for the first several years.
Thanks so much!
One other thing as far as liability goes....the LLC won't protect your personal assets 100% if you are sued for, say, neglect or errors and omissions. Your best bet is to get an umbrella policy and/or liability insurance as well as forming an LLC. It may never be necessary, but hey, you never know!
many posts about liability but none (if I am correct) about insurance
you need a business insurance with a few Millions of coverage
think about it a client visit you "..Fallen and I can't get up!.." here goes your sanity and $
plus last time I did a trade show or any show to gain exposure I was required to show a proof of insurance for about (don't remember) 3 or 4 millions
Business structure advice is all over the map. I've not yet cracked the $50K/year ceiling (working only part time) but just met with my CPA recently and will probably restructure from a sole proprietor to an S Corp. My tax liability will drop significantly and the amount of money I can sock away in a retirement plan will increase. I'll also have an extra measure of liability protection (although as a copywriter, I think the risks are remote.) It's not something to enter in to lightly, because of upfront costs, but I did the math for myself and that makes it worth it. I also recommend you read up on business structures yourself and perhaps get a second opinion as well. I think it's important we have a grasp of the fundamentals, even if the more complex aspects of it are beyond our grasp. After meeting with my CPA, I'm very glad she's the CPA and I'm not. :)
Last November, a client asked why I was taking so long to set up her 500+ item ecommerce website from the ground up. Although the contract called for 150 days to complete the job, her husband told her to tell me that he felt 4 weeks was long enough, and accused me of costing them thousands of dollars a day in lost revenue during the Xmas season.
I completed the job in 98 days, and the following week she filed a lawsuit for lost profits @ $500/day from the 30 day mark.
Although they have yet to bring this to trial (her lawyer told mine that if I forgive the final 25% installment payment, they would drop everything - no way that's going to happen), it was an eye-opener. My attorney suggested setting up an S-corp immediately. It cost just under $1000, and worth every penny for the protection it affords.
I appreciate the e-mail. I have only done 3 paid sites which probably were around $1,500 each. I only have taken on one project at a time and I haven't even begun to do contracts yet. I usually do an invoice of 1/2 the costs and an invoice of 1/2 the costs at the end.
A contract is a good idea, would you be willing to send me a sample contract so I could see how it is done?
Do you have the customer sign the contract?
And one other question - how do you pace yourself to ensure you will have the site done in time?
Regardless of size, always get a contract signed by you and your client with expectations spelled out precisely to avoid any misunderstandings.
On small sites (under $3000) I collect 50% up front, the balance upon completion. Larger sites ($3000+) I collect 33% up front, 33% at the halfway point, the balance upon completion. Any missed payments, and work stops immediately (as stated in my contract).
Pacing yourself is easy. I am always working on 3-4 jobs at a time. While I'm waiting for approval and/or text, graphics, etc. on job 1, I can continue working on 2,3 and 4. Waiting is a big time (and income) waster, so always have several sites going at once.
Send me your regular email through sticky mail and I'll send you my contract.
You should always incorporate over sole propietorship. Aside from the liability and tax benefits to corporation, it's a good thing to separate your corporate income from your personal income and pay yourself a salary.
It can be difficult for a sole proprietorship to buy a house or a car without a stable/verifiable income - a weekly paycheck, even if it's a small one, does this for you. There are a number of payroll services out there if you don't know how to do (or don't feel like messing with) this sort of thing, and many of them even offer benefits. If this is going to be a full time business for you and you won't be taking a paycheck from someone else while you work for yourself, then set up a corporation and have a payroll company manage your books. Pay yourself a salary and your Payroll company will give you a check or direct deposit every week with taxes and social security and medical insurance taken out already. It eliminates the extra pressure of running a business solo.