# LLC or soemthing else?



## bradhosbach.com (Dec 27, 2009)

I have a small scren printing biz, i make shirts in my basement on a 1 color press, i do about 600-1000 shirt per year. I want people to be able to write checks out to my company(primitiveshirts.com) and not my name. wha tis the easiest way to do this? get an LLC, i mso bad with paper work and tax stuff, can someone point me in the right direction, thanks

primitiveshirts.com


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## bradhosbach.com (Dec 27, 2009)

sorry for my awful spelling, i didn't mean to come off as a moron.


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## kimura-mma (Jul 26, 2008)

The easiest is probably a DBA (Doing Business As). Basically you will be operating as a sole proprietor as you are now, but under a business name (such as PrimitiveShirts.com) instead of your real name.

An LLC or Corp are other options, each with pros and cons. There are plenty of resources to read up on them to see if either make sense for you. Just do some searching on the forums or on Google.

But if your bad with paperwork and tax stuff, I would recommend calling a local accountant to help you out. They specialize in handling all of this paperwork for you so it's done timely, correctly and cost efficiently.

Hope this helps and good luck!


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## rhilferding (Jun 18, 2010)

To me, the LLC is better as it can help to protect your assets. You need some advise from an attorney, a CPA, and an insurance agent to make sure you are covered.

Remember that there are all kinds of liability issues creeping around the edges of what we do so be sure to protect yourself.

Good Luck


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## amphibious (Feb 25, 2010)

A lot of this depends on what state you live in and what sort of protection they provide.

I live in state that doesn't require any registration for a sole proprietorship, you just add your revenues to your taxes, about as simple as possible.

The basic distinctions are as follows...

Sole Proprietorship:
Pros: no to low fee to register, a relatively small amount of paperwork.
Cons: no liability protection (this probably isn't that much of a con... you're making tshirts, not things that can injure/kill people), depending on state your tax breaks will either be non-existent or low, if this is your full time job "proving revenue" is difficult in the case of applying for home loans, etc., some states don't allow sole proprietorships to use a DBA (doing business as), so your name has to be in your company, Joe Smith's Shirt Printing.

Limited Liability Corporation (LLC):
Pros: relatively small amount of paperwork, easier access to tax breaks, the most cost efficient solution for a business bigger than tiny but smaller than huge, easier acquisition of health care and such, easier access to business credit, SBA loans, etc., better liability protection.
Cons: some believe that since the LLC is a relatively new distinction that the laws concerning LLC transactions are still forming, and ambiguity is generally bad, depending on state you have to file quarterly taxes (fortunately, my state has a really simple to use website for this sort of thing).

Corporation (S-Corp and C-Corp):
Pros: maximum liability protection, best access to business credit.
Cons: tons of paperwork, much more expensive than the other options, few tax breaks unless you are massive, dealing with a "board of directors," pretty much have to get a lawyer and an accountant.

I have a graphic designer friend who recently started his own business... the lawyer he was working with had no experience with Sole Proprietorships and LLCs, so he recommended a corporation for what is essential a single person operation. His total start-up costs with registration and lawyer fees ran around $3000. My start-up costs for an LLC were around $300.


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## LTD Tee (May 20, 2010)

you don't need a lawyer to create an llc. CA charges $800 for llc every year, so if you don't need the protection go sole proprietorship.


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## thutch15 (Sep 8, 2008)

bradhosbach.com said:


> I have a small scren printing biz, i make shirts in my basement on a 1 color press, i do about 600-1000 shirt per year. I want people to be able to write checks out to my company(primitiveshirts.com) and not my name. wha tis the easiest way to do this? get an LLC, i mso bad with paper work and tax stuff, can someone point me in the right direction, thanks
> 
> primitiveshirts.com


Would need more personal info, but from what I am hearing you just need to get a fictitious name or DBA...and a state tax id. This will allow you to purchase inventory/supplies tax free and charge tax properly. It will also allow you to open a business checking account. 

LLC would be needed if you were putting yourself in a risky situation or if you have some large assets you would need to protect.

From what I hear from you I think you should just go the sole proprietor route... but if you have assets you should go talk to a lawyer/accountant.


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## epicradness (Sep 21, 2010)

Just a great topic.

My additional question here would be, what exactly could be considered an asset? 

In this case, would the printing equipment be considered an asset? Or are we talking about larger things such as the home the basement is in?

thanks in advance.


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## binki (Jul 16, 2006)

The easiest way is to do a DBA. The best way may be different. Before you charge off and do an LLC consider a C Corp. There are many benefits to a C Corp that are not available to any other business form.


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## thutch15 (Sep 8, 2008)

binki said:


> The easiest way is to do a DBA. The best way may be different. Before you charge off and do an LLC consider a C Corp. There are many benefits to a C Corp that are not available to any other business form.


Also a big negative of Double Taxation. C Corp pays taxes on the money then when the money is taken out you have to pay taxes again.


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## binki (Jul 16, 2006)

thutch15 said:


> Also a big negative of Double Taxation. C Corp pays taxes on the money then when the money is taken out you have to pay taxes again.


Not true. The only event where this might happen is if you declare a dividend. At that time it is not an expense of the business so that money is still taxed. As far as your personal income tax, it may be taxable. 

There are a large number of non-taxable cash benefits you can get from only a C-Corp, no other entity.


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## thutch15 (Sep 8, 2008)

binki said:


> Not true. The only event where this might happen is if you declare a dividend. At that time it is not an expense of the business so that money is still taxed. As far as your personal income tax, it may be taxable.
> 
> There are a large number of non-taxable cash benefits you can get from only a C-Corp, no other entity.


So do you never plan on pulling out you profit or do you plan on not making a profit? 

"When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend."

You might think you are pulling a fast one on the IRS, but probably will not last long. You are taking a salary instead of a divided... HOWEVER the Gov watches that stuff and CAN turn your Salary into dividends. 

Also:
Did the owners observe corporate formalities such as keeping minute books, passing resolutions, and holding board meetings?
Did the shareholders treat the corporation as a separate entity or as a simple artifice?
Did the corporation have any money to start with or in its infancy or was it merely a shell?

If you don't meet these criteria then you just wasted a lot of money cause you can still be personally sued.

Not saying you cannot pull things off short term... HOWEVER the IRS did not set up double taxation so that you can just walk around and never have to pay.


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## binki (Jul 16, 2006)

thutch15 said:


> You might think you are pulling a fast one on the IRS, but probably will not last long. You are taking a salary instead of a divided... HOWEVER the Gov watches that stuff and CAN turn your Salary into dividends.


Never heard of that happening. Please cite your case. 

Don't be so angry. You stated the problem with a C-Corp is double taxation and I pointed out that is only with dividends. Now you are changing your story to include meetings and forms and other stuff. I only stated that your statement of not having a C-Corp because of double taxation was bogus. This is the most mis-understood part of C-Corps. I just don't see it as a problem. 

Why would the IRS force dividends over Salary? With a salary the government gets 15.3% on the first X amount for Social Security and there is another small percent above that which is unlimited. The IRS has actively been going after S-Corps for pulling dividends over salary because of the payroll tax issue. This would conflict with your statement of converting salary to dividends. 

There are other ways to take money from a company. Health insurance, payments for non-covered health expenses, auto , phone , travel, housing , etc. These all have to be offered to everyone in the company but when you are small you can do these things without worrying about it if you don't have employees. 

Addtionally a C-corp is the only non-person that is a recognized entity by the Federal Governement and as such is protected by the Constitution and Bill of Rights. Pretty cool huh? 

Now, on the converting salary to dividends you really need to cite a case or two over this. Bank of America just paid their former CEO $200 Million in his last year before he retired. Are you saying they are going to convert that to dividends to get more taxes out of him? 

Microsoft paid NO dividends until just recently and Bill Gates was worth $80 Billion at that time. The government didn't force dividends on him.


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## thutch15 (Sep 8, 2008)

binki said:


> Never heard of that happening. Please cite your case.
> 
> Don't be so angry. You stated the problem with a C-Corp is double taxation and I pointed out that is only with dividends. Now you are changing your story to include meetings and forms and other stuff. I only stated that your statement of not having a C-Corp because of double taxation was bogus. This is the most mis-understood part of C-Corps. I just don't see it as a problem.
> 
> ...


All I am saying is there is only two ways to get profit out of a C Corp... dividends and retained earnings. YES you can take out a salary of what every you want, but the IRS can decide that it is not a salary and that you are really just getting the dividend of the profit.

The other info was just to show that if you are not doing everything correctly then you really are not a corporation and can be sued like it (another negative of C corp).

Bill Gates was worth $80 billion mostly due to the of the stock that he owned not the cash in his wallet. So yeah you can give yourself stock in your company, but don't think it is going to be the same as Microsoft... if so I want in.

Just trying to show both sides of the C Corp... there are negatives and positives... nothing against you in anyway.


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## leomatic (Aug 17, 2010)

thutch15 said:


> All I am saying is there is only two ways to get profit out of a C Corp... dividends and retained earnings. YES you can take out a salary of what every you want, but the IRS can decide that it is not a salary and that you are really just getting the dividend of the profit.
> 
> The other info was just to show that if you are not doing everything correctly then you really are not a corporation and can be sued like it (another negative of C corp).
> 
> ...



Right on - only way to get money out would be to 1. through wages or 2. dividends. Sure there are some tax advantages you can get from a C-corp vs other business entities, but now-a-days, C-Corps are rarely the best overall. 

LLC's are far superior for the smaller operation. Maybe 15 years ago C-corps were the go-to business entity, but not anymore. 


binki - I assume you are running a business as a C-Corp? I wonder why?
And to add why would the IRS change a salary to a dividend. It all comes down to what is reasonable. The B of A CEO is worth $200 million a year - that is typical for a lot of publicly traded companies. What is a typical wage for a screentprinter? That would be the base for comparison for the IRS. If the typical wage is 40 - 75k, the a corp with the officer/owner earning 150k and having no taxable income (in the corp), the IRS will investigate. They see 75k as overpaying an employee to avoid corporate tax - at 30%, thats about 22k in taxes, plus the extra 10 - 20% in capital gains tax from the dividend.

I really don't think C-corps are the way to go for most.


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## binki (Jul 16, 2006)

leomatic said:


> binki - I assume you are running a business as a C-Corp? I wonder why?


A C-corp, an LLC and a DBA (now closed). 

The LLC is a flowthrough and we could not prevent high profits from flowing to our personal 1040's and incurred high personal tax rates a few years ago. Our C-Corp will start showing a profit this fiscal year and we expect to be able to control that flow of income and divide it among the taxable entities to lower our tax burden which is legal. 

A C-Corp is a recognized entity and can have not only retained earnings but it's own section 179 deduction as well as offer benefits like paying for non-covered medical expenses. No other entity can do that. A C-Corp, being a recognized entity, is also protected under the Constitution. Your LLC, LLP, S-corp and DBA are not. 

Also, I have not yet seen a case cited where the IRS changes salary to a dividend. Please cite that. I have seen reports going the other way with an S-Corp S Corporations and Salary Payments to Shareholders

Additionally, you cite collecting 10% for capital gains but the payroll tax is 15.3% so I don't see where you are going with that one. 

Finally, the IRS has not ruled on LLC passthrough earnings being subject at all to payroll taxes. There is a lot of room there but we do the payments for direct work but not for income from rentals and such that are passive in nature.

So, having done a DBA, and LLC and a C-Corp, I prefer the C over all others.


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## leomatic (Aug 17, 2010)

binki said:


> A C-corp, an LLC and a DBA (now closed).
> 
> The LLC is a flowthrough and we could not prevent high profits from flowing to our personal 1040's and incurred high personal tax rates a few years ago. Our C-Corp will start showing a profit this fiscal year and we expect to be able to control that flow of income and divide it among the taxable entities to lower our tax burden which is legal.
> 
> ...


If it works for you, then that's great. This sort of thing is a case by case situation.

There is not much currently out there to support my case because C-corps in general are a lot less used since LLC's came into existence some 10-15 years ago. I have been doing taxes for the past 7 years, and would say I see less than 5% of my business returns are C-Corps. Sure, big companies are run as C-Corps, but the "reasonable compensation" issue is harder to judge on these big companies because the salaries range so much, and are figured in the 10's of millions, not thousands. Also, the IRS will target issues that can recoup the most taxes lost, and obviously this is not a high target area. It is in the code, and can be enforced. 

I was wrong about the Cap gain tax - it would be 15%. And at first glance, the cap gain tax and payroll taxes seem to wash out, being both 15%. But what the IRS would be concerned with is the corporate income tax that is not assessed on these unreasonable wages. If you got paid 100k from your company, and 50k was average for your line of work, then that unreasonable 50k is lowering your corporate taxable income. The IRS would say that that portion should be taxed at the corporate rate, of say, 30%. At this point, your 50k of profit is now 35k (50k x 30% tax = 15k - 50k = 35k). So now you can pull that 35k out of the corp, but you have to pay the 15% cap gain tax. 

We could calculate this out more, and take the individual tax rate and compare that to the corporate, but on average, the corporate tax rate is higher. Also, the cap gain tax is the lowest it has been in some time, and once this gets reset, 20 - 30% rates will be back. Then you are looking at substantially more taxes.


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## stf_ceo (Dec 9, 2010)

bradhosbach.com said:


> I have a small scren printing biz, i make shirts in my basement on a 1 color press, i do about 600-1000 shirt per year. I want people to be able to write checks out to my company(primitiveshirts.com) and not my name. wha tis the easiest way to do this? get an LLC, i mso bad with paper work and tax stuff, can someone point me in the right direction, thanks
> 
> primitiveshirts.com


Corpnet.com
Less expensive than a lawyer and they explain everything. Nothing supersedes a lawyers expertise but this a great option that I'm using. Got a code for you "IAPUNDER30". Switch has left the building!!


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## binki (Jul 16, 2006)

leomatic said:


> ...
> There is not much currently out there to support my case...


Thanks. I would need to see some case law on it. My CPA handles the tax issues so we discuss these things a couple times a year when mapping out a strategy. 

When we get to millions in sales per year I will look at that.  Thanks.


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