5 ms·

But if you had formed a single entity for all your side projects, then it wouldn't have happened a second time (you wouldn't have to have formed 2 entities for

by arn 16y ago

But if you had formed a single entity for all your side projects, then it wouldn't have happened a second time (you wouldn't have to have formed 2 entities for projects that never got off the ground -- just one). I think it's reasonable to start a single llc for your side projects, and to spin them off as needed. And is what I have done (and spun off 2 LLCs from the original). The problem if you don't is that everything will get muddled in your personal finances and that's not a good thing. (I have no idea about the logistics if you want funding down the line, however)

lionhearted 16y ago
> The problem if you don't is that everything will get muddled in your personal finances and that's not a good thing. Good point, I'm not salaried so my finances, accounting, and taxes are already fairly complicated so that creating a new entity for a casual project doesn't make such a difference. Expenses for new projects are usually just a single line item in my budget. For someone getting most of their income from salary, it might make their taxes easier to have an LLC that shows a loss the first few years and passes that through. What was the spinning off process like, if you don't mind elaborating? You start building in your personal LLC, and then if the project takes off you spin it off? Then you've got personal assets separately from your various LLC assets? Has it made enough of a difference to be worth the paperwork? (Also, a California LLC costs minimum $800 year, even if you lost money, so I assume you're not in CA)
enjo 16y ago
By definition everything in a LLC is muddled in with your personal finances. That's why it's a "pass-thru entity". For tax purposes, they really are one and the same.
- JangoSteve 16y ago
  This is not true. A pass-through entity simply means that the LLC does not pay taxes. It does however keep separate records and submits separate tax forms than you do personally. It goes like this: LLC files form 1065 Form 1065 includes income / expenses of the LLC Attached to form 1065 is a form K1 for each member Form K1 includes the (net profit/loss * member's % ownership) + guaranteed payments (like a salary) You file form 1040 Attached to form 1040 is your copy of the K1, which gets treated as additional income You may also attach your personal business expenses [1] You pay taxes on this ammount Your LLC then mails in the 1065 + K1s. Then you send in your 1040 + K1s + the taxes you owe personally. So you see, LLCs file tax forms completely separately, it's only the check you have to write to the government that's "pass-through". [1] Your personal business expenses are expenses that came out of your personal account for a business expense, so like a reimbursable expense. This gets reported on your personal taxes rather than the company's separate business expenses that came out of the company account. In general, just try not to do this if you can help it, as it just makes things more confusing.
  - GrowWebs 16y ago
    Correct me if I am wrong, but a 1065 might be overkill for a one owner business (LLC or not). Yes you should report your LLC income separately on a 1065 & allocate profit/loss if there are multiple owners. However, if there is only one owner, it is IMO an extra unneeded step. For a small business with one owner, a Schedule C (or C-EZ) attached to the 1040 will suffice. No need to send a 1065 to the IRS and then submit a K1; it is just a small business in the eyes of the IRS. Keep it simple by keeping track/records of your business income and expenses and report it on the Sched C which attaches to your 1040. Note: I am currently taking a corporate tax course & studying for the CPA exam. I prepared taxes as a VITA volunteer last year.
    - JangoSteve 16y ago
      Yes, good catch, sorry I didn't clarify. So essentially, the 1065 + K1 has 2 main purposes as I understand it. 1) Report the business income / expenses, and 2) report the respective percentages that each member takes of the business's profit / loss (notice there is no (3) for the LLC actually paying taxes, this was my main point). With a single-person LLC, it's even simpler, because there is no (2). This is why single-person LLCs can file a Schedule C as a simple attachment to their own taxes, which gets reported on personal taxes as other income, just like the K1 would. And Schedule C is still reporting all of the company's income / expenses separately than the individual's other financials, so there is still no "muddying up" between business and personal finances.

by arn 16y ago

lionhearted 16y ago

> The problem if you don't is that everything will get muddled in your personal finances and that's not a good thing. Good point, I'm not salaried so my finances, accounting, and taxes are already fairly complicated so that creating a new entity for a casual project doesn't make such a difference. Expenses for new projects are usually just a single line item in my budget. For someone getting most of their income from salary, it might make their taxes easier to have an LLC that shows a loss the first few years and passes that through. What was the spinning off process like, if you don't mind elaborating? You start building in your personal LLC, and then if the project takes off you spin it off? Then you've got personal assets separately from your various LLC assets? Has it made enough of a difference to be worth the paperwork? (Also, a California LLC costs minimum $800 year, even if you lost money, so I assume you're not in CA)

enjo 16y ago

By definition everything in a LLC is muddled in with your personal finances. That's why it's a "pass-thru entity". For tax purposes, they really are one and the same.

JangoSteve 16y ago
This is not true. A pass-through entity simply means that the LLC does not pay taxes. It does however keep separate records and submits separate tax forms than you do personally. It goes like this: LLC files form 1065 Form 1065 includes income / expenses of the LLC Attached to form 1065 is a form K1 for each member Form K1 includes the (net profit/loss * member's % ownership) + guaranteed payments (like a salary) You file form 1040 Attached to form 1040 is your copy of the K1, which gets treated as additional income You may also attach your personal business expenses [1] You pay taxes on this ammount Your LLC then mails in the 1065 + K1s. Then you send in your 1040 + K1s + the taxes you owe personally. So you see, LLCs file tax forms completely separately, it's only the check you have to write to the government that's "pass-through". [1] Your personal business expenses are expenses that came out of your personal account for a business expense, so like a reimbursable expense. This gets reported on your personal taxes rather than the company's separate business expenses that came out of the company account. In general, just try not to do this if you can help it, as it just makes things more confusing.
- GrowWebs 16y ago
  Correct me if I am wrong, but a 1065 might be overkill for a one owner business (LLC or not). Yes you should report your LLC income separately on a 1065 & allocate profit/loss if there are multiple owners. However, if there is only one owner, it is IMO an extra unneeded step. For a small business with one owner, a Schedule C (or C-EZ) attached to the 1040 will suffice. No need to send a 1065 to the IRS and then submit a K1; it is just a small business in the eyes of the IRS. Keep it simple by keeping track/records of your business income and expenses and report it on the Sched C which attaches to your 1040. Note: I am currently taking a corporate tax course & studying for the CPA exam. I prepared taxes as a VITA volunteer last year.
  - JangoSteve 16y ago
    Yes, good catch, sorry I didn't clarify. So essentially, the 1065 + K1 has 2 main purposes as I understand it. 1) Report the business income / expenses, and 2) report the respective percentages that each member takes of the business's profit / loss (notice there is no (3) for the LLC actually paying taxes, this was my main point). With a single-person LLC, it's even simpler, because there is no (2). This is why single-person LLCs can file a Schedule C as a simple attachment to their own taxes, which gets reported on personal taxes as other income, just like the K1 would. And Schedule C is still reporting all of the company's income / expenses separately than the individual's other financials, so there is still no "muddying up" between business and personal finances.