LLC? How do I know if I should do it?
More dumb money questions:
I plan to stay in the adult business in one form or another for quite a while, possibly another 10 years or so. Even if I will no longer be dancing, I may consider starting a lingerie model agency, bachelor party agency, adult websites, etc.
So I am wondering, what are the benefits of forming an LLC? I have heard peopel talk about them, but I don't really understand what having one would or would not do for me. Most of the websites I have seen on the topic try to sell you one, but they are not really clear (to me at least) what the benefits are.
Thanks!
Re: LLC? How do I know if I should do it?
I have a few LLC set up. It is very easy to do. Main benefits is that all the expenses flow throught to you for tax write offs and if somebody sues your business it will protect your personal assets.
Depending on the state that you file in will depend on the costs. NJ is really cheap and you can do it right online. NY is a little more difficult. In the past people formed lllc's in Delaware becasuse it was so easy to do. Nowadays mosts states are pretty well organized.
Re: LLC? How do I know if I should do it?
here's a few good features of LLC's ... ->
In a nutshell, an LLC provides the 'insulation' of a corporation in regard to business creditors, lawsuit plaintiffs, etc. attempting to lay their hands on LLC members personal assets to settle LLC business debts/liabilities.
The LLC also provides nearly the same simplicity of a sole proprietor/independent contractor business in terms of legal and tax paperwork (as opposed to a corporation having to file separate tax returns and having to hold annual meetings, issue annual financial statements etc.)
The LLC provides a legal means to avoid estate tax and taxes/fees to transfer a 'family' business to a child upon retirement or death of a parent.
The LLC provides a legal means to make virtually all 'fringe benefits' tax deductible i.e. life and health insurance for LLC members.
The LLC also provides a basic level of 'smoke screen' for nosey individuals or gov't agencies.
Re: LLC? How do I know if I should do it?
Colleen -
An LLC may or may not be beneficial to you. As an overview - an LLC is merely a partnership (or sole properietorship if you are a single member LLC {see later discussion}) with liabilty protection.
If you have 2 or more members - you file a partnership tax return and record your net taxable income on your tax form via a 'form k-1'. Advantages to k-1's is that they tend to be audited less then sole proprietorships but not necessarily a dramatic difference.
If you have a single member LLC, then for most purposes it is a disregarded entity. There are filing requirements in each state that accepts them. The Delaware use generally doesn't make sense for an adult entertainment worker - although many people will disagree with me.
The LLC in and of itself isn't generally an estate tax impact unless you only own a fractional interest and the LLC doesn't automatically allow you deduct life and health insurance in any advantageous way. So that isn't a reason to have one.
An LLC can protect your personal assets from litigation (so can insurance so weigh the difference) - but you had better operate your business like a business or the protections may not stand up in court.
Depending upon your income - an S-Corporaton may be a better solution then a LLC because you may be able to save social security taxes on much of your earnings and that can make a $10k per year difference in cash flows. The S-Corp does have additional filing requirements but those requirements may be minimal relative to the money. Plus s-corps tend to be audited less and that has value.
Additionally, when you file for a loan to buy a house, etc. you will have a paycheck and s-corp earnings and that might be more easily explained then an LLC/sole proprietorship.
The cost of either an s-corp or LLC depends upon your state and that should be researched. California is high and Nevada is low (for example) - however if you are in IL then you should be filing there.
Many adult workers that I advise have a tiered ownership of S-corps and LLC's to enhance privacy and transactions - not to avoid taxes. With your ong-term goals a multi-entity approach may make sense thinking about risk aversion if one of your ventures hits a snag.
I hope this helps. You may contact me for further information.
Daniel D. Morris, CPA
[email protected]
Re: LLC? How do I know if I should do it?
Hi Colleen,
I recently set up an LLC. If you decide to go the LLC route, I would suggest setting it up yourself. It is very simple to do and inexpensive (at least in AZ). Here is a breakdown of my costs:
- Filing cost - $50
- Expedite fees - $35
- Publication in approved paper - $40
Lawyers were quoting $400-1500 to set it up for me. It takes some research and time to do yourself, but IMO, worth it. My company is pretty simple, with me as the only member, so that also made it easy.
Feel free to PM me with any questions. Good luck!
Kat
Re: LLC? How do I know if I should do it?
Thanks for the advice, everybody. The things I was hoping to get out of a LLC (or s-corp???) are:
--Privacy, to keep my real name off the internet, register my vehicles to the busines name, etc. (I picked up a stalker once, and would go to pretty serious lengths to avoid doing so again)
--Tax advantages. I wanted to file an income tax return this year and was told there was a 13% self-employment tax, and I should probably not bother.
--Credit. If I ever need a business loan, or when I get ready to buy my next house, etc.
--Legitimacy and professionalism. FOr whatever reason, I want to be able to say, "I am Colleen O'Reilly, owner of Colleen O'Reilly Enterprises" not just "I am self-employed."
I am also thinking that, when I am in a position to have other IC's working for me, it would be better if I had a LLC. Don't know why I think that; it just seems like it should be true.
Re: LLC? How do I know if I should do it?
You want to have an LLC to track revenues (cash flow)... 10 yearsdown the line if you want to sell the business you can show a track record that can be audited. It will help a lot in the long run.
If you are planning on getting a website make sure you register under Domains by Proxy, that way nobody will be able to see who you are in the whois database.
Whatever your business is or what you are trying to achieve. I would suggest setting one up just to protect what you have already. It's really cheap and depending on your state can be really easy.
Re: LLC? How do I know if I should do it?
As far as privacy goes... All states except Nevada require owners' real names and info to be public record. Only Nevada allows shareholders of a corporation to be private. You would still have to have someone as President on public record though. Just thought that I'd mention it. ;)
Re: LLC? How do I know if I should do it?
This is a VERY informative thread, ya'll. Bravo!
Re: LLC? How do I know if I should do it?
And please remember LLC stands for Limited Liability Company not Corporation sometimes people mix this up. Also, books from the NOLO Press provide a great overview on different type of corporate entities.