By: Krystle Crossman
When you start a new business the challenges can seem overwhelming. You will need to know a lot of different information about taxes, income, reporting, and accounting. Even to experienced entrepreneurs it can be a large undertaking. One of the first things that you will need to figure out with your business is whether you are going to file taxes as a sole proprietor or a limited liability company (LLC). It can be very confusing to figure out which one will be the best for you. In the end by comparison, an LLC is much more user-friendly for someone who is becoming their own boss. Here are the reasons why:
1. You are able to file all of your business income, losses, and expenses in a Schedule C form. This makes it easier to file as everything is in one place and it can be filed under your personal taxes on a 1040 form as opposed to having a completely separate tax filing. Sole proprietorships also file their taxes this way.
2. Instead of just your name as the company name you are able to put LLC. This shows people that are doing business with you that you have taken all of the necessary channels to become a credible business. To be able to get the LLC after the company name you will have to get a tax ID number for the business and register with the state. This is why having those three letters after the company name will show that you are a legitimate business, more so than a sole proprietor would.
3. Should a lawsuit against your business occur, you are safer as an LLC than you are as a sole proprietor. If you register as an LLC and are sued, only the company assets are at risk. Should you register as a sole proprietor you are putting everything that you own personally at risk such as your car, your home, and any investments that you may have.
4. When you register as a sole proprietor you are not given exclusive naming rights. Someone else registering can come in and have the same business name. When you are an LLC you have the name and no one else can register under that name. If you have a unique name for your business to stand out it is best to register as an LLC to ensure that the name stays unique.
5. Setting up an LLC is much easier and running one is easy too as long as you are aware of the rules. You will need to register the business with the state. You must have a monthly meeting for your organization. If you are the only one in the business, have a lunch date with yourself and consider it a business meeting! You also need to pay state fees to set the business up. The fees vary by state. Lastly you will need to make sure that you are properly filing all taxes correctly.