Sole Proprietorship, Corporation or LLC?

[jamesbjenkins]

Ok guys, I've reach the point in the development of my side biz where I need to start considering the big picture moving forward. I have all my gear insured and I have a general liability policy. To this point, I've declared myself a sole proprietorship and filed a Schedule C on my taxes. I live in Texas, and things are pretty simple here. I'm moving into more real estate clients, and I'd like to make sure I don't take unnecessary risk with the business in my personal life.

How do you declare your business? Sole proprietorship, C-Corp, S-Corp, LLC?

My question is directed solely at those members here who are either running a licensed photography business part-time and are serious about it (formal business plan, marketing, liability insurance, etc.) or those who are full time pros (current or former). Please don't muddy the water if you're not a serious part-time or full-time pro. Thanks for your time in writing!

 

[tirediron]

Sole propietorship; however as with so many things the reasons will vary by region. For me, it was a toss-up between SP and incorporation. Since I won't be hiring staff, the financial protection offered by incorporating in BC wasn't out-weighed by the tax benefits of remaining an SP.

 

[Bitter Jeweler]

I'm an LLC, but file as a Schedule C.
I was told by my accountant, that without employees, it wouldn't make sense to files an S-Corp until I (the biz) bring in $250K or more a year.

That's all I know, my accountant does his thing, and I smile and nod.

 

[Seefutlung]

Some brief differences:

The principal difference between Corp and Sole proprietorship is that a Corp is a stand alone entity solely responsible for all debts and liability. A sole proprietorship (DBA) is merely an extension of yourself, any liability associated/generated by the DBA is your personal liability as well.

A 'C' corp is a standard corporation solely responsible for all taxation, the buck stops at the C Corp. The 'S' corp is for small businesses, and you can pass on any tax losses to your personal income tax.

An LLC is designed more for partnerships between corporations than a single individual. All profits at the end of the fiscal year must be divided amongst the partners.

There are many many more differences between the various mean & ways of conducting business ... I strongly suggest you grab some book and do a lot of reading before choosing a path. A type S corp is probably your best course, but you need to do some reading to determine what is best for you.

Gary

 

[KmH]

The more complex the business type - sole proprietorship, LLC, S-corp - the more demanding the government income/taxes reporting requirements (paperwork).

The likelyhood you would have sufficient revenue to justify forming a S-corporation is along the lines of slim and none. Bitter's accountant advice is sound and the expectation that revenue will grow well past $250,000 a year is the rest of that story.

That narrows it down to an SP or LLC. If the business is just you, it is hard to justify forming an LLC, again because of the extra paperwork (reporting requirements) involved, until revenue reaches a value your accountant would recommend.

 

[jwbryson1]

An LLC is designed more for partnerships between corporations than a single individual. All profits at the end of the fiscal year must be divided amongst the partners.

I'm not sure where you got this idea from, but as an LLC, you still have the limited liability afforded to a corporation (same if you were a C Corp or an S Corp), which is a good thing. As a single member LLC, you can either be taxed as a Corporation (C Corp) or you can be treated as a "disregarded entity" and file on a Schedule C.

You cannot elect to be taxed as a partnership as a single member LLC.

 

[mjhoward]

There really isn't much more to forming an LLC than there is to a Sole-Proprietorship. As Bitter mentioned, most people just add this line to Schedule C when filing their personal tax papers and pay the ~$40/yr or whatever it is. For the small fee you get to separate yourself from any company debts that may incur. If a sole-proprietorship is sued or owes debt to creditors, anything you own is up for grabs including your home. With an LLC, your personal assets are protected.

 

[skiboarder72]

I (and PPA) both really recommend forming a single member LLC. In south carolina it cost me $160 to set it all up and now I have the peace of mind knowing there is that extra level of protection. Taxes are pretty much the same, just a schedule C.

 

[unpopular]

This is truly a question for an attorney or small business consultant. I would suggest going to your local Chamber of Commerce and see what advising resources exist in your community. Many smaller cities have put a lot of effort into forming these "small business incubators" which help and support startups find resources and make appropriate business decisions.

 

[jaicatalano]

Go s corp.

 

[JAC526]

You have no limited liability with a Sole Proprietorship. If you are concerned about being sued then an LLC is the the way to go.

It is considered a pass-through entity which means for tax purposes you either file a Sch C (if its just you) or a K-2 (partnership return). So you kind of get the best of both worlds.

My honest opinion (and that is all it is...an opinion) I see no benefit to setting up as a sole proprietorship.

 

[jwbryson1]

It is considered a pass-through entity which means for tax purposes you either file a Sch C (if its just you) or a K-2 (partnership return). So you kind of get the best of both worlds.

This is only true if you have 2 or more members. Again, as a single member LLC, you do not get to elect to be taxed as a partnership. As a single member LLC, you may either elect to be treated as a "disregarded entity" (i.e., Schedule C), or a C corp.

The benefit is limited liability.

 

[12sndsgood]

For me it seemed going with an LLC was the route for me. aded a bit more protection from personal assests that a sole propietership does as long as you do things properly. and was quite cheap to setup.

 

[Bitter Jeweler]

Go s corp.

Y?​

 

[pixmedic]

Great thread. My wife is sole prop. Schedule-c, but we've also been looking into maybe LLC to help protect personal assets. Is there much protection added going LLC?