DISCLAIMER: I studied engineering and not business in college so these questions/comments may seem really really simple and stupid. But, hey, we all have to start somewhere, especially with stupid questions.

So, over the past few years, I've been working hard to build a portfolio to where I feel I can charge people/clients for my work/skill. So, now I'm looking to build an LLC for my work in addition to my normal 9-5.

Question #1
Does the money from the project go into an LLC bank account or can it go directly into my personal checking account?

(I understand that it's potentially difficult to discern between personal cost and business cost, b/c especially with a small business they are one-in-the-same.)

Question #1.5
If it goes into an LLC bank account, do I have to issue myself a "paycheck" so that it's documented properly or can I just do a bank transfer?

Question #2
When it comes to tax time, I'll obviously have to file once for my 9-5 job and another time for my LLC. So, let's assume my business has been profitable over 2008, but I've "paid" myself 99% of the profits, what kind of paperwork do I have to fill out? (I'm a tax idiot, I just go to H&R Block with my W2 and let them do the work)

Question #3
If I'm selling photos via a stock agency such as istock or shutterstock, I should count that towards the LLC revenue, correct?


Again, sorry for the dumb questions. I just want to make sure I'm doing this correctly and maximize my profit and minimizing the mistakes and potentially any tax hiccups.

Thanks in advance.

You want to talk to a CPA on this one. There are different types of LLC's and Corps that have vastly different tax, record, and 'paycheck' requirements, as well as legal protections. Some you can simply use your own bank account, some you have to run it thru a business account first and cut yourself a check (with taxes taken out). Since you need a professional to set up these types of business things anyways, talk to one who will walk you thru the pros and cons of each. I know enough about them to know that I wouldn't trust my word alone before setting things up.

Nathan Whitchu wrote:
You want to talk to a CPA on this one. There are different types of LLC's and Corps that have vastly different tax, record, and 'paycheck' requirements, as well as legal protections. Some you can simply use your own bank account, some you have to run it thru a business account first and cut yourself a check (with taxes taken out). Since you need a professional to set up these types of business things anyways, talk to one who will walk you thru the pros and cons of each. I know enough about them to know that I wouldn't trust my word alone before setting things up.

+1

Do some research on-line so you're not clueless when the accountant starts rambling.

No matter which business structure you end up choosing, you're best off running all business income through a business account anyway. It makes it far, far easier to keep track of which funds are business funds and which are personal.

I ditto Ryan's statement. Having a specific account for your business is the simplest way to keep records!
You may not want to pay for a business account, which some banks make very expensive, even if it is a very small venture. I have a separate account in my personal name, with Special after the name, and use that as my business account.
And it might be noted that some Credit Unions allow you to put a business name on your account without charging business rates.
Again, a good accountant is not an expens; it's an investment! Often a business-saving investment!
I have worked for CPAs more than once, and found that many businesses close because of not taking proper care of the taxing problems, mostly due to ignorance, not fraud!

Best things you can do is find a good accountant.

-D

I'm not versed in US law, but my management consultancy has assisted over a dozen new ventures get off the ground.

Separating bank accounts is important when the business needs to make an impression or when the income is substantial enough to warrant the extra cost. Corporates for example far prefer paying against a business invoice with a tax number. Father's of the bride may be able to claim too (if they have a business) using your invoice for PR photography.

One point of a LLC is to reduce personal liability in the event of liquidation (i.e. insurance or litigation that gets out of hand). It will be very difficult to convince a court or Revenue service that you are separate entities if the funds are intermingled.

Another advantage of the LLC is to claim expenses back, such as part of your household rent for use in the office. Again, the tax man will have an excuse to deny your claim if there is no credible separation. If you have a 9-5 job as well, the extra income may put you into a different tax bracket, so it will be quite important to claim back all of your equipment purchases (if they are recent and you can show they were for business and not pivate use).

The golden rule with expenses is that you can claim almost anything back that is used directly in making your income. Note the 'almost', so I'll agree with the others in that a good CPA is essential when you get serious. Don't be afraid to negotiate too - maybe some PR work for their firm?

Also note that some of the LLC-related accounting and legal concerns will vary from state to state, and the tax implications will definitely vary. Here in New York State I've apparently got some of the most expensive LLC-filing fees and some of the most complex tax codes, especially regarding sales tax. It's definitely worth consulting an accounting who understands your state's guidelines.

I'm a single-owner LLC for all photo and video business, and I maintain separate business checking (my basic operating account) and money market (for tax withholding) accounts. My business and personal accounts are with the same bank, so I can make transfers electronically between accounts when necessary. My credit card processing is handled by a third party, but deposits via EFT directly into my operating account. I pay myself a basic annual salary, reimburse myself from the business accounts for any cash expenses or expenses that end up on personal credit cards, file separate business and personal tax returns. I also pay all freelancers and crew as 1099-Misc contractors. I try to avoid ending the fiscal year with any significant amount of cash sitting in the corporate accounts, so I'll make asset purchases or bonus myself in order to limit corporate tax load.

In some states there's no need for an LLC's sole owner to salary him/herself and just assumes that the company money is the company owner's money, though that doesn't alleviate the need to account for expenses.

Thanks for all the feedback, but now leads to some new questions.

#1
What would you recommend I do, if I plan on moving out of my current state sometime soon? I hate my 9-5 job and I'm not particularly fond of the city I'm in.

#2
Invoices.... i guess the CPA can help me with this one, but i hear quickbooks is the easiest way to go.


Thanks

DarrenS wrote:

#2
Invoices.... i guess the CPA can help me with this one, but i hear quickbooks is the easiest way to go.


Thanks

I agree with what the others said about a separate checking account. I have a business account with the same credit union that I use for my personal account, and they charge me nothing for the business account - even free checks!

I highly recommend Quickbooks. It's quick to set up and use, and generates very professional-looking invoices. And if you run all your revenues and expenses through it (easier than it sounds), it will generate the tax reports for your accountant, greatly simplifying your tax filings at year-end.

Ron S.

Here in New York State I've apparently got some of the most expensive LLC-filing fees and some of the most complex tax codes, especially regarding sales tax.

Same in Illinois. Looking at the difference in red tape and expenses between LLC and "closely held" (small) corporations in Illinois, it's clear the intention of the legislature was to keep people away from becoming an LLC.

What would you recommend I do, if I plan on moving out of my current state sometime soon? I hate my 9-5 job and I'm not particularly fond of the city I'm in.

Deal with a lawyer or CPA in the state you plan to move to. These matters are all state-level issues, and the states vary ENORMOUSLY on the requirements and details.

Invoices.... i guess the CPA can help me with this one, but i hear quickbooks is the easiest way to go.

Maybe, maybe not. CPAs like the exported files from Quickbooks, but Quicken for Business works well and is simpler.

Thank you to everyone for all your feedback. I really appreciate it.

As mentioned, talk to a CPA. it's money well spent. and you'll need one for tax time - and if you've got an LLC you'll need one for a lot more.

Do you need an LLC?
what are you calling the 'company'? Different states have different rules on whether you need to do a 'DBA', doing business as. the state issues a certificate that you can then use to open a bank account under the biz name, and you can sign checks, etc.

Whether you use quickbooks, Excel, or a shoebox you'll need to have your CPA help you set up your 'chart of account'. Advertising, office supplies, gifts to clients, samples, etc, etc, etc all need to be accounted for correctly.

LLCs were originally designed for doctors and lawyers - to protect the OTHER partners when one screws up (malpractice). There are legal (liablility as well as ownership, inheritance, etc) as well as tax issues. As a sole proprietor you can't collect unemployement, but as an employee of a corporation you can. Subtle but important perhaps. There are many others too.

I would talk to a CPA and do a comparison of what it would cost you to set up either as a LLC or a DBA. No matter which you go with you will need a good accountant you like and trust. Our family business(not photography related) was a LLC and to be honest it was more trouble and expense to run that than a DBA so we went back to being a DBA - which was a pain to undo as well as do . I definately would not set up a LLC if you are moving, wait til you get where ever you plan to settle down, and run as a DBA until then.

We do our checking with a local Credit Union as well, have the business account, personal account and then another that I run my business through. I am able to transfer back and forth easily and simply mark it as such when I do my bookkeeping.

" Here in New York State I've apparently got some of the most expensive LLC-filing fees"

FYI, it's not just the filing fees ($200 + $50 last I checked). It's also the publication requirements contained in section 206 of the New York LLC law. Depending on the county and required newspaper the publication fees can add up.

This is an interesting discussion. My husband and I ran a mid-size business and after a period of time set up as an S-Corp. Prior to that we just ran as a sole proprietorship -- very simple. We really did need to incorporate though as we were involved in contracting, working for multiple public agencies, etc. A very litigious community to say the least. We were never involved in a law suit but had we been, the other guys always had more money and power than we did to defend ourselves and our assets.

I set up our accounting on Quickbooks Pro. Excellent system for all purposes. And, as others have mentioned, really assisted the process when dealing with our CPA. In fact, although I haven't actually entered into a photography "business" yet, I have already gone into my Quickbooks Pro program and set up the books, so they're ready to go when I am.

I'm not sure why you want to go with an LLC right off. You can file a DBA for practically nothing, publish it in a paper very economically, and when you get the document back, just take it into the bank and open your business account.

Anyway, my two cents for what it's worth. Wish you very much success in your new enterprise. Look forward to seeing some of your work on one of the forums and to hear where your journey takes you. Cheers.

In our case, every job we did we had to bond -- which meant pledging all our personal assets to back that bond until the job was complete. I don't see that ever being the case with producing or selling photographic images. Anyway, I do agree that you should ask around and find a good CPA to give you the +/-'s as which business model you should follow.

agreed with everyone on the CPA advice. Also you will need a lawyer to set up your LLC with the most favorable by laws.

As an owner of the LLC you can use the LLC to purchase cars, equipment, etc to offset your revenue.

DarrenS wrote:
Invoices.... i guess the CPA can help me with this one, but i hear quickbooks is the easiest way to go.


Don't "guess" about a CPA. You need a CPA. You need a lawyer, too.

Don't go to the internet for help on this. When you get audited by the IRS you going to tell them "but the internet said it was OK?"

Nothing to add in on the CPA/law discussion other than stop lurking for advice here, the only real answer is consult a professional in your state

However, for invoicing, I would not recommend Quickbooks at all. It's great for managing the books, but definitely not what you want for invoicing. Instead, look at Filemaker Pro. It's a databasing application that offers literally limitless configuration.

You create your custom contracts, invoices, correspondence, everything. Instead of keeping a contract template as a word file, then modifying it manually for each client, FP lets you auto-generate your contracts via predefined variables. As you create your contracts, it takes all the data (client name, address, phone, job parameters, etc) you entered and can seamlessly move it over to the invoice that needs to be generated, then to a thank you note afterwards, then a christmas card, and so on. You get the idea. It really revolutionizes the way you do business.

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.

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.

It sounds like there are numerous options for book-keeping and invoicing. And it sounds like many of you use the same software for both.

It sounds like FileMaker Pro can do both my book keeping and Invoicing and making contracts and releases, correct?

Sound like FileMaker Pro is a one stop shop for everything a photo business may need. Then FotoQuote can help with pricing.

Does that sound about right?


(Quicken and Quickbooks seem to lack some ease and some features)

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.

Darren, if you haven't already, some very good IRS information can be found here...

http://www.irs.gov/businesses/small/index.html


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.

Good luck!

This is another good link if you haven't read it yet...

http://www.irs.gov/businesses/small/article/0,,id=99336,00.html