Starting business (Sole Proprietorship, LLC, etc..)

Ok I have been doing website type work outside of my day job for about 4 months now. I'm starting to make money at it. Not too much but its increasing. Should I look at starting my own business for tax reasons and future growth? Like a sole proprietorship or LLC. If things continue to grow I would like to be able to run my business full time and quite my day job. So what would be the best option here?

People in similar situations or who have gone through this in the past please reply. I'm in the US so lets keep this discuss between US people since I know different countries have different laws and everything.

Thanks

 

Since you are still doing it by yourself, the easiest way to get things going in terms of turning it into a business, would be to register an EIN as a sole proprietor. Once you get an EIN, you can register a DBA for your business in your name and register for a state tax license. Once you get the DBA registered, you can get the bank account in the business name. Now you basically have a simple sole proprietorship business with a business bank account.

For the start I would investigate to make sure you don't violate any trademarks, but you can register your own trademark later.

Some usefull links:
IRS Page to register an EIN. http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

US Gov SBA Starting a business - http://www.sba.gov/starting_business/

 

What is DBA and EIN?

I know the main advantage of a LLC over a sole proprietorship is the the personal liability factor. Is there much liability factor to worry about when doing this type of work? Making websites and earning income off of them? Its not like owning a bar or something.

 

Sorry about that.

EIN is Employee Identification Number. Its basically your federal Tax ID number. Even if you are a sole proprietor you should get one. It keeps your personal and business affairs separate by doing this, even though they are registered to the same person.

A DBA means Doing Business As, and is basically a fictitious name that you are using to do business as. If your website is superdesigns.com, and you want to do business in that name, you file a DBA of superdesigns.com for yourself. Basically you are doing business as superdesigns.com. Your bank account would also say your business name.

As far as the LLC vs Sole Proprietorship, its a matter of how protected you want to be. Personally, I would start with a simple Sole proprietorship and move to a LLC or corporation once things pick up a bit. I like to start simple. Others would suggest to register as an LLC right away. If the cost of registering doesn't matter, then registering as a LLC could make the business more professional from the start. But either way, the business is what you make it.

 

I went the LLC route and it worked best for me. The liability issue is a biggie and some businesses rather seem to work with you if you are a legal entity and not a DBA or sole proprietor type business. Tax-wise there might be better solutions, but I think it depends on the overall volume you are pushing to have the additional administrative work pay-off.

Christoph

 

Invest a couple hundred bucks and talk to a qualified tax accountant or CPA. It will be money well invested. Depending on your location filing as an LLC is negligable (MN is $125 and no annual renewal).

 

My business is a sole proprietorship. I chose it over LLC because I don't like telling people that my company is limited liability, it will actually scare potential customers away. Not many, but it will do it.

There are only a few reasons when liability becomes an issue, and 99% of them are contractual disputes.

If you have a very clear contract with your clients, and it includes detailed clauses of what will happen if either parties don't perform, then you'll be just fine. As long as everybody understands what is going on it doesn't matter what your business type is.

The problem comes into play when you have a vague contract that says "you will design a website for $400". A phrase like that is so open to interpretation and it's guaranteed to cause problems with the law.

But if you are just doing IM, on the other hand, it doesn't matter what your business type is. Affiliate programs generally don't sue their affiliates, unless you start doing some really naughty things like spamming.

It really depends on what exactly you are doing.

For example, my company is a sole proprietorship and it's classified as an internet marketing consultancy. Virtually all of my contracts state that the client is paying for consultations, not a target goal. The reason for something like this is that clients will call you all the time for information, so if they understand from the beginning that you are being paid hourly and not on a piecework basis, then things tend to run smoother.

 

I was thinking along the lines as Discreet. Doing affiliate marketing type work should not have much if any liability issues. I'll probably run as a sole proprietorship for now. And if things really take off then I'll look in to a LLC more.

Right now I don't think is would be worth. I have an appointment with an accountant this weekend and I'm going to ask him some questions as well.

 

For me I just went to my local bank and opened a business checking account and in the paperwork it states my DBA business name.

For taxes my accountant went ahead and and filed another form and that was it.

If you have an office in your home and you used it as strictly business, you can deduct it come tax time.

You should also set aside 30% of all profits to pay as taxes come year end.