6 ms·

The article claims as a second benefit of an LLC: > 2. Tax benefits. You can deduct qualified business expenses from the total income of the business. Here’s a

by gojomo 6y ago

The article claims as a second benefit of an LLC: > 2. Tax benefits. You can deduct qualified business expenses from the total income of the business. Here’s a simple example: If you spent $1,000 on servers and your website made $10,000, then you’ll only pay taxes on the $9,000 in profit. You don't need an LLC to deduct such expenses. Even sole proprietors can deduct business expenses against business profits.

therockspush 6y ago
the value of the llc or s-corp is the corporate veil. whether or not thats worth the $800 annual charge in CA, on top of other inconveniences, is the question.
unishark 6y ago
Indeed anyone self-employed, full-time or part-time. A LLC just (hopefully) gains you liability protection and perhaps a bit more legitimacy, in return for a big fee in California.
- themodelplumber 6y ago
  *For single-member LLCs. In other cases it may take your CPA all of five minutes to show you the financial math as to why it's a wise move.
vmception 6y ago
sole proprietorships and other unincorporated ventures are getting a lot more respect and seamlessness lately! the stimulus programs specifically included them and the SBA asked no questions you do still want the liability protections, more disciplined separation of assets and accounting by having an incorporated name, and deterrent to people looking to sue, alongside additional levels of anonymity if you choose which can further deter potential creditors they can also make elections to parallel regulatory or tax regimes, which you don't want to alter on your personal body. such as election 475 for active traders, converting capital gains and losses into ordinary income allowing for unlimited tax deductions on losses, instead of the default status for capital. or setting up "blocker" corporations in other jurisdictions to help other people avoid onerous default tax regimes.
- poulsbohemian 6y ago
  My partner and I just had a very similar conversation as she has several business ventures that she could continue to conduct as a sole proprietor, or she could form a corporate vehicle. My thinking is - if you are engaged in an ongoing concern, especially if it is responsible for your livelihood, it makes so much sense to explore incorporation of some variety. This could be for no other reason than to split out business vs personal finances and records. As you explore various financing, tax, and legal scenarios though, the cost to form and keep an LLC (or then choose S-corp taxation...) make it completely worth the administrative overhead.
  - vmception 6y ago
    I incorporate like I’m unwrapping candy. Second nature to me. Not that costly of a “hobby” and I’ve let them go delinquent temporarily if I have a disruption in income. I’m often sitting down at a local bank branch opening a new account for one. But I would also say consider Transferwise for business bank accounts. Super easy and you can get Euro SEPA region accounts for your US entities as well. (Without Transferwise update, this is actually hard for American citizens but it might not be something you ever encounter.) I never do a local/“foreign” llc filing unless the state is fining me to do it. Can’t really relate to the idea of debating to incorporate. I know the unknowns can be daunting but sole proprietorships are lazy.
PopeDotNinja 6y ago
A single member LLC in California is treated exactly like a sole proprietorship for tax purposes, except it costs you $800 per year. Unless you know you need it, you probably don’t need it. It won’t protect you from lawsuits, you’ll still have to provide personal guarantees on loans, etc. Source: had single member CA LLC and wasted $800/year for a few years on it.
- giancarlostoro 6y ago
  > It won’t protect you from lawsuits, This sounds misinformed. The point of an LLC as far as I have always understood it is that if someone sues your company they cannot take your personal assets as collateral but only that which belongs to the company. If someone sues you, you can lose a crappy small LLC or would you rather lose your home as part of a settlement cause somebody is a monster. Feel free to correct me if I am wrong on this or if this is a misconception.
  - poulsbohemian 6y ago
    I am not a lawyer, but I've been in business long enough and have been through enough legal issues to know that forming an LLC isn't sufficient to keep you from getting sued personally or having the corporate veil pierced if someone wants to come after you. In this regard, the parent posters are correct - there may be good reasons for you to form an LLC, but legal protection is a grey area.
    - dragonwriter 6y ago
      > having the corporate veil pierced if someone wants to come after you. The creditor wanting to pierce the veil is, unsurprisingly, not a sufficient legal condition for piercing the corporate veil, otherwise corporations and LLCs (not just California and not just single-member) would be worthless. Of course, a sloppily-run LLC is more likely to result in piercing the veil, and a single member LLC that the owner views as a maintenance free magic shield is particularly likely to be sloppily run.
brtkdotse 6y ago
As a European who also worked a year in the US, it's starling how utterly _byzantine_ everything related to operating a business in the US is. Why in the everloving world would I need a lawyer that should be an extremly simple process? Forming an equivalent to a LLC in the majority of EU is a 5-10 step web form signed online, followed by some waiting and a sub 100€ one-time-fee. Furthermore, financial literacy also seem very, very low, almost as if the powers to be maliciously wanted to misinform people. "You get taxed on profits, not on revenue" seems like the fundamental axiom of business, yet here it is, present as "this one weird tip the IRS hates". See also "I don't want a raise, it'll put me in a higher tax bracket".
- eaenki 6y ago
  That’s not even true. Aside from the U.K. and Estonia, I can’t think of an European country where 1) it costs less than $1K to incorporate 2) you can do it online 3) You can DIY Italy, Germany and SwitzerlanD just to pick 3 I’m familiar with, are nothing like U.K./Estonia On the other hand incorporating a C Corp in Delaware costs between $89 and $399 and you can do it online by yourself
  - simplyinfinity 6y ago
    In Bulgaria it cost me 50 euros to incorporate using a service :D Edit: yes, it's not entirely online, but it takes half a day to complete
  - markvdb 6y ago
    In Belgium, starting an llc will set you back: - about 90€ for registering yourself individually as an economic operator - about 275€ in state fees for the llc - 50€ for activating your VAT number - about 1000€ excluding VAT in legalised robbe^^^notary fees In all, this is about 1400€ excluding VAT for getting started, excluding accountant or fiscal adviser fees. Then there is the yearly social contribution of about 350€, even with zero turnover, and more, before you have booked your first cent of revenue.
  - messe 6y ago
    Just chiming in: it's possible to do all of that in Ireland.
hellofunk 6y ago
> If you spent $1,000 on servers and your website made $10,000, then you’ll only pay taxes on the $9,000 in profit. I wonder if this is correct. Many places require you to deprecate assets such as computers over many years, so the deductions are not all taken out of your profit the year you buy them. Sounds like this article is conflating the legalities of setting up a business with the accounting of operating one, two different things.
- bennylope 6y ago
  > Many places require you to deprecate assets such as computers over many years, so the deductions are not all taken out of your profit the year you buy them It's likely that in some accounting regimes you have to to this, but in my own experience with a small business in the US, multiple accountants have simply depreciated assets like our computers immediately. When I originally questioned this our CPA said we could depreciate it over several years but it wasn't necessary in our case (small enough [asset] value and lifetime) and not worth it. As it stands I imagine if someone is spending $1,000 per year on "servers" these are non-depreciable cloud service expenses.
- jeltz 6y ago
  Depends on your jurisdiction but in many places you are allowed to instantly depreciate small assets, but not allowed to do so with more expensive ones.
- coolgeek 6y ago
  It depends on what "spent $1,000 on servers" means If you bought (and own) servers, you must depreciate and amortize them. These are capital expenditures, aka capex If you rented servers (e.g. AWS, GCP), you deduct the entire cost when it is incurred (or realized, depending on the details). This is an operational expense, aka opex

by gojomo 6y ago

therockspush 6y ago

the value of the llc or s-corp is the corporate veil. whether or not thats worth the $800 annual charge in CA, on top of other inconveniences, is the question.

unishark 6y ago

Indeed anyone self-employed, full-time or part-time. A LLC just (hopefully) gains you liability protection and perhaps a bit more legitimacy, in return for a big fee in California.

themodelplumber 6y ago
*For single-member LLCs. In other cases it may take your CPA all of five minutes to show you the financial math as to why it's a wise move.

vmception 6y ago

sole proprietorships and other unincorporated ventures are getting a lot more respect and seamlessness lately! the stimulus programs specifically included them and the SBA asked no questions you do still want the liability protections, more disciplined separation of assets and accounting by having an incorporated name, and deterrent to people looking to sue, alongside additional levels of anonymity if you choose which can further deter potential creditors they can also make elections to parallel regulatory or tax regimes, which you don't want to alter on your personal body. such as election 475 for active traders, converting capital gains and losses into ordinary income allowing for unlimited tax deductions on losses, instead of the default status for capital. or setting up "blocker" corporations in other jurisdictions to help other people avoid onerous default tax regimes.

poulsbohemian 6y ago
My partner and I just had a very similar conversation as she has several business ventures that she could continue to conduct as a sole proprietor, or she could form a corporate vehicle. My thinking is - if you are engaged in an ongoing concern, especially if it is responsible for your livelihood, it makes so much sense to explore incorporation of some variety. This could be for no other reason than to split out business vs personal finances and records. As you explore various financing, tax, and legal scenarios though, the cost to form and keep an LLC (or then choose S-corp taxation...) make it completely worth the administrative overhead.
- vmception 6y ago
  I incorporate like I’m unwrapping candy. Second nature to me. Not that costly of a “hobby” and I’ve let them go delinquent temporarily if I have a disruption in income. I’m often sitting down at a local bank branch opening a new account for one. But I would also say consider Transferwise for business bank accounts. Super easy and you can get Euro SEPA region accounts for your US entities as well. (Without Transferwise update, this is actually hard for American citizens but it might not be something you ever encounter.) I never do a local/“foreign” llc filing unless the state is fining me to do it. Can’t really relate to the idea of debating to incorporate. I know the unknowns can be daunting but sole proprietorships are lazy.

PopeDotNinja 6y ago

A single member LLC in California is treated exactly like a sole proprietorship for tax purposes, except it costs you $800 per year. Unless you know you need it, you probably don’t need it. It won’t protect you from lawsuits, you’ll still have to provide personal guarantees on loans, etc. Source: had single member CA LLC and wasted $800/year for a few years on it.

giancarlostoro 6y ago
> It won’t protect you from lawsuits, This sounds misinformed. The point of an LLC as far as I have always understood it is that if someone sues your company they cannot take your personal assets as collateral but only that which belongs to the company. If someone sues you, you can lose a crappy small LLC or would you rather lose your home as part of a settlement cause somebody is a monster. Feel free to correct me if I am wrong on this or if this is a misconception.
- poulsbohemian 6y ago
  I am not a lawyer, but I've been in business long enough and have been through enough legal issues to know that forming an LLC isn't sufficient to keep you from getting sued personally or having the corporate veil pierced if someone wants to come after you. In this regard, the parent posters are correct - there may be good reasons for you to form an LLC, but legal protection is a grey area.
  - dragonwriter 6y ago
    > having the corporate veil pierced if someone wants to come after you. The creditor wanting to pierce the veil is, unsurprisingly, not a sufficient legal condition for piercing the corporate veil, otherwise corporations and LLCs (not just California and not just single-member) would be worthless. Of course, a sloppily-run LLC is more likely to result in piercing the veil, and a single member LLC that the owner views as a maintenance free magic shield is particularly likely to be sloppily run.

brtkdotse 6y ago

As a European who also worked a year in the US, it's starling how utterly _byzantine_ everything related to operating a business in the US is. Why in the everloving world would I need a lawyer that should be an extremly simple process? Forming an equivalent to a LLC in the majority of EU is a 5-10 step web form signed online, followed by some waiting and a sub 100€ one-time-fee. Furthermore, financial literacy also seem very, very low, almost as if the powers to be maliciously wanted to misinform people. "You get taxed on profits, not on revenue" seems like the fundamental axiom of business, yet here it is, present as "this one weird tip the IRS hates". See also "I don't want a raise, it'll put me in a higher tax bracket".

eaenki 6y ago
That’s not even true. Aside from the U.K. and Estonia, I can’t think of an European country where 1) it costs less than $1K to incorporate 2) you can do it online 3) You can DIY Italy, Germany and SwitzerlanD just to pick 3 I’m familiar with, are nothing like U.K./Estonia On the other hand incorporating a C Corp in Delaware costs between $89 and $399 and you can do it online by yourself
- simplyinfinity 6y ago
  In Bulgaria it cost me 50 euros to incorporate using a service :D Edit: yes, it's not entirely online, but it takes half a day to complete
- markvdb 6y ago
  In Belgium, starting an llc will set you back: - about 90€ for registering yourself individually as an economic operator - about 275€ in state fees for the llc - 50€ for activating your VAT number - about 1000€ excluding VAT in legalised robbe^^^notary fees In all, this is about 1400€ excluding VAT for getting started, excluding accountant or fiscal adviser fees. Then there is the yearly social contribution of about 350€, even with zero turnover, and more, before you have booked your first cent of revenue.
- messe 6y ago
  Just chiming in: it's possible to do all of that in Ireland.

hellofunk 6y ago

> If you spent $1,000 on servers and your website made $10,000, then you’ll only pay taxes on the $9,000 in profit. I wonder if this is correct. Many places require you to deprecate assets such as computers over many years, so the deductions are not all taken out of your profit the year you buy them. Sounds like this article is conflating the legalities of setting up a business with the accounting of operating one, two different things.

bennylope 6y ago
> Many places require you to deprecate assets such as computers over many years, so the deductions are not all taken out of your profit the year you buy them It's likely that in some accounting regimes you have to to this, but in my own experience with a small business in the US, multiple accountants have simply depreciated assets like our computers immediately. When I originally questioned this our CPA said we could depreciate it over several years but it wasn't necessary in our case (small enough [asset] value and lifetime) and not worth it. As it stands I imagine if someone is spending $1,000 per year on "servers" these are non-depreciable cloud service expenses.
jeltz 6y ago
Depends on your jurisdiction but in many places you are allowed to instantly depreciate small assets, but not allowed to do so with more expensive ones.
coolgeek 6y ago
It depends on what "spent $1,000 on servers" means If you bought (and own) servers, you must depreciate and amortize them. These are capital expenditures, aka capex If you rented servers (e.g. AWS, GCP), you deduct the entire cost when it is incurred (or realized, depending on the details). This is an operational expense, aka opex