Forums: Discussions for entrepreneurs and small business.

I run a motorcycle web site and I recently started selling shirts to cover my expenses. I think I will eventually make enough to cover all of them (expenses), but that`s not my major concern.

I`m thinking about incorporating so I can write-off my expenses and not be taxed on 100% of what I make. I also plan to start selling motorcycle parts in the future and want to start off with the right type of incorporation.

I`ll be in this biz by myself, want the easiest route at tax time and minimal paperwork.

Also, since this is a web based business, can I incorporate in Delaware or shouldI do it in my home state of Texas? Delaware is a 1/3rd the cost of Texas.

Thanks in advance.

Hey BigDogBiker,

I`m looking at both LLCs and S-Corps myself. I would like to create somewhat of an umbrella organization for my various ventures. Here are some of the differences I`ve discovered as well as my own personal considerations. I`m sure some of the veterans on these boards will have much more to offer.

Anyway...

The real advantage I see with LLCs is if your business will have assets that will increase in value over time (i.e. property). An LLC allows you to "hold" these assets without paying income tax on the increase in value year after year, while you would have to in a corporation. However, everything in an LLC is taxed at 15% by the federal government. So, no matter what your business earned in a given year, you`re guaranteed  to pay 15% of that to the government. So, if your business isn`t going to make that much money after write-offs, you`re probably better off going with an S-Corp.

Also, if you`re seeking any type of VC funding, I`ve heard that VC would rather invest in a corporation of any type over an LLC because it`s easier to split ownership.

As for the fees, if you`re determining which structure to use based on the fees, you might want to consider not incorporating for awhile unless you really need the liability protection, but if you`re the only employee there are certainly limits to that liability protection.

As for the state, I haven`t been able to see any huge advantages for a small company to incorporate in either Delaware or Nevada (another popular state for incorporation) and doing business in another state. For example, in North Carolina (and I imagine many other states), if you conduct business there you have to register the business in some fashion. This means you would be end up filing two annual reports every year.

So, for me, I think an S-Corp in my home state of NC is the way to go, but there are certain things about your business that may make you go in a different direction.

The question of C-Corp vs S-Corp vs LLC is one that I get a lot. My thoughts on the tax aspect of the decision can be found here on my site. (Easier than just typing the same thing over and over.)

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Accounting Made Simple | Sole Proprietor Tax Guide

Caniacpack,

Thank you for the great response. I`m thinking an LLC will be my best option for the future.

PiperTax, 

Thank you for the link. I looked around your Tax Blog a bit and found this topic "Part-Time Job While Starting a Business (1099 Income and W-2 income)" and believe this is what I have been looking for. I was didn`t know I could write off my expenses of running my web site to avoid being taxed on 100% of what I make.

Hi BigDogBiker,

I have started a LLC. I elected for tax reasons to file a form that I would operate as an S corp for taxes. This lowered my tax rate. Hope this helps.

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Tony

Those who care teach.

BigDogBiker, glad to hear you found my blog helpful.

Also, just a warning to anybody reading: Yes, you can elect for your LLC to be taxed as an S-Corp. Depending upon your situation, it may save you some money in taxes. But what it definitely will do is increase your accounting and legal costs. So make sure you understand exactly how you`re benefiting, and make sure that it`s worth it.

And, while accountants do have a code of ethics they`re supposed to adhere to (and the vast majority of them do, in fact, do the right thing for their clients), please understand that asking an accountant if you should form an S-Corp is much like asking a barber if you need a haircut.

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Accounting Made Simple | Sole Proprietor Tax Guide

Hi PipierTax,

You are 100% correct. I did alt of research first before going to the accountant. For me it is worth it. Mostly because of the tax savings. As the years go by the tax savings will grow alot making it worth it. I would suggust that reseaching for your business is worth it. I has to payoff in the long run. My first year in business it was a break even. This year it will be worth it. Hope this helps everyone out there. Thanks

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Tony

Those who care teach.

I`m a college student, and I`ve been running an online advertising business for the past year as a sole proprietorship, but am bringing on a partner.  My tax accountant recommended setting up an LLC taxed as a partnership, but I`m also considering the benefits of an S-Corp, or even an LLC taxed as an S-Corp.

Could anyone explain the tax difference (as well as any other financial difference) between an S-Corp, and an LLC taxed like an S-Corp?  Also, this business is a part time job, so if it were set up as an S-Corp, would the wages paid to the partners be able to be counted based on the part-time nature, or would the IRS flag that as suspect, and increase the salary amount to a full-time basis (which would most likely eliminate all tax benefit as an s-corp vs. LLC).

Thanks!

I should also mention that this will be formed in NJ.  Thanks again.

Last note to add, but my partner and I want to get business credit cards to more easily manage the finances of the company.  Pretty much 99.99% of our expenses are paid by credit card, so if one structure is more beneficial to getting business credit, that would help, as well.