DBA vs LLC

[pickleweed]

Hi Everyone....

I am planning my business startup, but caught between choosing to register the business as a DBA or as a LLC. I am aware of the difference between the two as well as the pros and cons, but not completely sure about how taxes work. My startup is going to basically be based out of my home....I am turning the guest room into my studio...home office. I am going to be designing invites and announcements. So I am the only person working for my company. Does the LLC require me to have a record of payroll to myself? How does taxes work for a DBA compared to a LLC? If I register for a LLC, can I use my home address on the filing since my studio is based out of my home?

Please advise. Thanks!

[Cognition]

Hi Everyone....

I am planning my business startup, but caught between choosing to register the business as a DBA or as a LLC. I am aware of the difference between the two as well as the pros and cons, but not completely sure about how taxes work. My startup is going to basically be based out of my home....I am turning the guest room into my studio...home office. I am going to be designing invites and announcements. So I am the only person working for my company. Does the LLC require me to have a record of payroll to myself? How does taxes work for a DBA compared to a LLC? If I register for a LLC, can I use my home address on the filing since my studio is based out of my home?

Please advise. Thanks!

First of all, a DBA, also known as a ficticious name registration, is different from an LLC [which is a business entity that offers asset protection].

Usually, you file a DBA in the county where you are conducting business [or based in]. Simply filing a DBA at your county's courthouse is NOT going to offer the benefits that formal incorporation would offer you.

An LLC [like an Inc (S-corp or C-Corp) or LP (Limited Partnership)] is filed in the state where you conduct business. An LLC is filed to officially make your business a seperate, taxable, legal entity [or body] that offers asset protection, personal liability reduction, and taxation advantages [over those of an individual tax return].

I suggest you read this information to at least introduce to favorable business entities: http://www.corporate.com/should-i-incorporate.htm

Compared to an INC, an LLC would probably be your best choice for setting up a good entity for your home based business. It's quite easy to setup. Here's more information on Limited Liability Companies: http://www.corporate.com/llc-limited...ty-company.jsp

Forming an LLC can easily be done through a service company or with the assistance of a business lawyer. I choose the latter as you will have more assistance [the attorney's knowledge of your business' specific practices] through the incorporation process and filing of the documents with your state.

[radreality]

since your main concern is about taxes....go talk with a CPA. Most will give you a free consultation because they know they will most likely get business from you in the future.

A lot of people prefer to do their taxes on their own to save money. But if you are worried about the cost of a cpa then you shouldn't be in business.

A cpa, accountant, attorney, and business consultant will be some of the best money a business could ever spend.

Using a professional isn't an excuse to not educate yourself though. You should still have a good understanding of things.

Two resources I recommend if you are trying to minimize costs (yes they are affiliate links):
NOLO
Legal Zoom

______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[Cognition]

A cpa, accountant, attorney, and business consultant will be some of the best money a business could ever spend.

Using a professional isn't an excuse to not educate yourself though. You should still have a good understanding of things.

Absolutely, I agree. Having these professionals you can refer to for advice will be a significant value to your business. But remeber that YOU make the decision at the end of the day. Take all the [competent] advice you can, but remember to think for YOURSELF.

Since I place great emphasis on strategy as an entrepreneur, I recommend sitting down with your CPA and attorney, and coming up with a system of operation - develop a methology for your bookeeping, reporting of taxes, and other corporate formalities. Integrate the various deadlines for these reports and payments in your personal organizer - that way you will not be burdened with remembering all your legal obligations or worse...FORGETTING about them.

Develop a strategy for the operation of your business - internally as well as externally.

[jasaunders]

Whether you are a sole proprietor operating under a DBA or form a LLC, taxes flow straight through to you as an individual. You will only be taxed on your personal income, the company is not taxed.
The big difference however, is that any money you make in a given year as a sole proprietor will be taxed, it is automatically personal income because you have no seperate entity. Likewise for losses. With an LLC, in any given year you can keep the money "in the company" in which case you will not have to pay taxes on it. But if you pay yourself money from the company, and eventually you will have to, you will be responsible for the taxes. So you don't avoid taxes, you can just pick when and how much to pay at a time. This is more useful for writing off losses, because tax laws limit the amount you can writeoff in a given year based on your investment, so it can be wise to defer losses to a future year.

[Cognition]

Whether you are a sole proprietor operating under a DBA or form a LLC, taxes flow straight through to you as an individual. You will only be taxed on your personal income, the company is not taxed.

This is called flow-through taxation.

Actually, you can elect for an LLC to be taxed as a seperate entity. This is useful in creating a credit file for the LLC [more easily accomplished with seperate tax returns]. In this case, you could take a salary from the company [when it becomes financially feasible] without filing a Schedule C, when the LLC has election to be tax seperately [instead of flow-through taxation], and enjoy the benefit of deducting 50% of the Social Security and Medicare tax and fringe benefits deductions of "C" corporations.

It's really fun when you look at the different formation and taxation approaches you can take.

[radreality]

Why an LLC and not a S-Corp? I personally prefer S-corps. I am in the planning stages for my first LLC right now, so we'll see how it goes.

______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[Cognition]

Why an LLC and not a S-Corp? I personally prefer S-corps. I am in the planning stages for my first LLC right now, so we'll see how it goes.

Why do you prefer an S-corp, Rad?

[radreality]

Why do you prefer an S-corp, Rad?

I wasn't really asking you, the question was toward pickleweed since it was never mentioned as an option.

There isn't that much of a difference between s-corps and LLC's for small businesses. After my attorney explained to me why he recommends s-corps most of the time (there are certain types of businesses whice are better suited as an LLC, such as real estate), I actually agree with him. LLC's are relatively new compared to s-corps. If you look at the history of S-corps, they were actually originally created for similar reasons that the LLC has now been created. And looking at the history of the s-corp entity and how the laws have slowly changed over the years to what it is now; it is pretty safe to assume that the same thing will happen to LLC's.

S-corps have been around longer, are better grounded, and have already gone through the major "change phases". LLC's have gone through a little bit of that, but are expected to endure a lot more.

Nothing wrong with LLC's, but as time goes on, expect some major changes to the laws governing those entities.

I’m not saying that no changes will be made to s-corps in the future, but most of the major changes have already happened.

BUT, this is completely theoretical. This is what history has shown and we just have to wait to see what the future holds.

______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[Cognition]

I wasn't really asking you, the question was toward pickleweed since it was never mentioned as an option.

There isn't that much of a difference between s-corps and LLC's for small businesses. After my attorney explained to me why he recommends s-corps most of the time (there are certain types of businesses whice are better suited as an LLC, such as real estate), I actually agree with him. LLC's are relatively new compared to s-corps. If you look at the history of S-corps, they were actually originally created for similar reasons that the LLC has now been created. And looking at the history of the s-corp entity and how the laws have slowly changed over the years to what it is now; it is pretty safe to assume that the same thing will happen to LLC's.

S-corps have been around longer, are better grounded, and have already gone through the major "change phases". LLC's have gone through a little bit of that, but are expected to endure a lot more.

Nothing wrong with LLC's, but as time goes on, expect some major changes to the laws governing those entities.

I’m not saying that no changes will be made to s-corps in the future, but most of the major changes have already happened.

BUT, this is completely theoretical. This is what history has shown and we just have to wait to see what the future holds.

Ya, lack of precedent with this relatively new entity regarding the lack of court judgements for LLCs may result in some decision that may not suit owners. But with the literally skyrocketing number of new LLC formations [due in large to Internet startups], we'll see [as you mentioned above] a formal body of regulations regarding LLCs will emerge.

[radreality]

I wasn't really asking you, the question was toward pickleweed since it was never mentioned as an option.

Sorry, after reading over that again, what I said sounded kind of rude. That was not the intent. My appologies.

______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[Cognition]

Sorry, after reading over that again, what I said sounded kind of rude. That was not the intent. My appologies.

No problemo, mi amigo.

[pickleweed]

Thanks guys! You were all very informative and helpful. I will have to do more research and will actually speak with a CPA.

Since you guys mentioned S-corp....could you guys tell me more about that?

Thanks!

[Cognition]

Thanks guys!

Always glad to help whenever possible!

I will have to do more research and will actually speak with a CPA.

Err...you need to speak with a business attorney to gain further insight into this, NOT a CPA. Remember, a [compentent, experienced, business law practicing] attorney will assist you into selecting and forming the correct entity for your business. The CPA is there to help you develop a methodology for your tax reporting, accounting practices, etc.

Since you guys mentioned S-corp....could you guys tell me more about that?

Okay, remember there are 4 major [good] business enitities that are formed - C corporations, S corporations, Limited Liability Companies, and Limited Partnerships. OK?

"C" corporations and "S" corporations are both INCs that have some key differences, primarily relating to taxation:

"C" corporations can be taxed twice. If the company has a profit at the end of the fiscal year, the gained profit can be taxed. Secondly, if the company has shareholders and it pays dividends to these shareholders, then they too will be taxed. This is called Double Taxation.

"S" Corporations enjoy the benefit of having flow-through taxation [like LLC's]. S corporations were basically formed because of a desire to benefit from the structure of a corporation without the penalty of double taxation.The company isn't treated as a distinct tax entity, and the profits and losses are passed through to the owners' individual tax returns. Once again, this is called Flow Through Taxation.

I hope I answered your question.