Trent Allen wrote:
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.
I grant that the OP is asking about LLC's. I looked into those but determined that an S-corp was better suited for my needs.
If structured as an S-Corp, Distributions are subject to PIT, but not FICA. That's 15.3% saved right there. But if the sum of your distributions (annually) is greater than your annual income; expect them to come knock on your door.
There is no hard and fast rule on this... which means play at your own risk. My distributions are no more than: 1/3 distributions, 2/3 salary. I know people who have done (from profits: 9/10 distributions, 1/10 salary) but that's just asking for trouble.
Personally, given how litigious everyone is these days, I think a little 'corporate' protection doesn't hurt. It's like insurance. You hope you never ever need it; but you rue the day you do and don't have it.
Whether you do or don't incorporate, I'd recommend the following:
1.) Completely separate finances.
2.) Talk w/ an attorney and find out what is right for you in your state.
Maybe having a DBA is enough. Maybe not. In either event, best wishes to you on your future endeavors.
Trent you said, among other things, "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."
There are as I know you know many reasons for incorporating (or not) but your example is not one of them.
Doing business through a separate legal entity (e.g., LLC or c-corp) will not protect your non-business assets (such as your house in your example) under the example you noted. If YOU conk somebody on the head they won't need to sue the LLC (or other entity) they will sue you directly. It will protect your other assets IF ANOTHER EMPLOYEE of the business causes a personal injury. In that case they could sue the business and/or that other employee directly. They could not reach your other assets.
The way to protect your assets (business or otherwise) from your own negligence is to buy adequate liability insurance.
Secondly, most States will have similar pages stating their own requirements, tips for doing business, etc...
It's not the easiest reading material, but there is more than enough there to probably satisfy your questions, at least until you get involved with a CPA.
I'm in Canada so a lot of what I have say may or may not apply.
Here we are strongly encourged not 'co-mingle' transactions for personal and business uses. I have 4 bank accounts all under the same account number. Personal chequing & savings, Photography chequing & savings. I have two debit cards. One for personal and one for photography. Never co-mingle. The tax folks just love mingled accounts!!!
Don't know what a LLC is but suspect it's a form of incorporation. Don't know the US laws. In Canada a director of a company may be personably sued for wrong doings of the company. Not really much protection up here.
I totally agree with all the folks who've suggested a CPA and a Lawyer. Feels like a major expense when starting out but can save you untold amounts of money should something not go right. Know this fellow called Murphy....
Ask around before you choose a CPA and a Lawyer. They're like wedding photographers, some are really class acts, others own a P&S.
Like a lot of folks have said. Business is business. Maybe 20% of the time you'll be shooting. The rest will be processing, promotion and gosh! bookkeeping!
It's a business. Your specialty is photography. If you're really great you can hire people to do the stuff you don't like doing. But!!!! You''d better know their jobs so you can supervise!
A single owner under the guise of an LLC or Chapter S will not automatically mean protection for you or your personal assets. So don't think it will be a blanket to hide under. At least that's how it was explained to me when I went through the process. You may be just as well served by going DBA.
As has been stated numerous times, consult with accountant and lawyer to see what will work best for your situation.
