Trent Allen
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 p.1 #20 · (Dumb) Business Questions | |
An LLC isn't necessary unless you are trying to incorporate to protect your other assets from exposure should your company be sued or fail and go bankrupt somehow exposing your personal assets. In fact, LLCs are basically setup to do just that - create corporate protection with the income of the LLC simply forwarding to your personal tax return like a simple sole proprietorship.
Intermingling business and personal funds in the same bank account is not an issue from a tax standpoint. From an organizational standpoint, it may pose a problem. Using a program like Quickbooks, Quicken, MYOB, AccountEdge, or even File Maker can easily categorize the income and expense, but it takes a more time to sort out the profits and losses. Most banks will allow you to open a "personal" checking account that has low or no fees and allow you to use it for your business if the number of transactions will be low. However if you are incorporating in any way and want the business funds to be shielded from your personal assets (the purpose of incorporating), then setting up a business account with your articles of incorporation with the bank would be recommended (though it sounds unnecessary in your case).
The method of paying yourself is irrelevant. If you incorporate and setup a payroll by establishing a federal EIN, you pay yourself and take out taxes and pay social security which you can't get refunded should your business not be profitable. If you pay yourself with what might be known as distributions, you'll be liable for the same taxes, but you pay them later. Distributions are NOT an expense though.
The bottom line is your business will pay taxes on its profit or loss no matter how much you pay yourself, and that profit or loss goes straight to your personal return no matter if you are an LLC or a Sole Proprietor (which is what you are if you don't incorporate). However, in this way, you are able to count your expenses against your profits which may include travel, equipment, supplies, etc. In this way, your income is reduced and you only pay taxes on the profits. You may even lose money which can offset other income (such as capitol gains from say, a profitable stock sale). Or if you paid yourself and claimed it as an expense for the business, you'd have to claim the income on your personal return anyway (as if you worked for a company as a 1099 vendor), so it's the exact same thing.
For your question 2, the answer is above. You pay yourself 100% of the profits because the profit of the LLC forwards to your personal return no matter if you "pay" yourself or not. How much and when you write yourself a check is irrelevant from a tax standpoint. You pay taxes on 100% of the profit of the company (including the company share of social security).
And yes, royalties from stock agencies count as income.
My advice is to not complicate this: start a business, open a "personal" bank account, begin to track your income and expense with a financial program (or if you're capable of a little more complexity, a database program like FileMaker as Jonathan suggests), and file it all on a schedule C form (as a sole proprietorship) on your personal tax return. You'll find on the form the categories of the expense items to deduct as the IRS sees it (any reasonable business expense) and the only thing you may need help for from an accountant is a depreciation schedule for your equipment. If you can make any income, then the expense of camera supplies and equipment and other can be expensed through your schedule C company. It's easy. Then print out an income and expense report and hand it to any accountant (even H&R Block). He'll straighten out anything you were doing incorrectly (for the coming year), and he'll help you figure your depreciation if you can't figure it yourself. He or you can fill out the schedule C and the profit or loss of the company forwards to form 1090. A good accountant is good for anyone, so if you want to start a relationship with one this is a good way.
If your business gets going well, or you find yourself in the position of needed to reduce the liability of your personal assets, you may find incorporating worth the expense. My brother is a pretty big time commercial advertising photographer and has been for 25 years or so, and he's never incorporated. I simply wouldn't do it unless I thought I might be in the situation where I could conk somebody on the head with my camera and they would sue and they could take my house because my photo business wasn't incorporated. I personally have a business that is incorporated because I have the need for it. So it's not that I'm just against corporations. You don't need one yet. Good luck! And spend your money on equipment and get some jobs first, you'll know when you need a lawyer and an accountant.
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