5 ms·

I’ve thought of doing this, but how would it work if you have a normal day job? Can you have your job pay you through the LLC?

by reidjs 5y ago

sillysaurusx 5y ago
That’s sadly the catch. I’m sorry — I completely forgot to mention that this works for me because I’m consulting, so businesses pay my LLC rather than me. However, I will say that one business wanted to hire me full time, and I refused and asked for a higher consulting rate, which they agreed to. So it’s not impossible for your next job to end up similarly. But then you don’t get benefits (my wife’s health insurance covers us both), sick days, and you probably have to log hours (to my surprise). So even if it’s more lucrative for me right now, there are definite reasons this path isn’t suitable for everyone. Definitely consider it if you can swing it though. And also, you can simply invoice yourself for services rendered from your LLC, which effectively transfers money from your personal account to the LLC. I’ve had to do this to bootstrap funds into the account (since your balance starts with $0, which is useless). The problem is tax. There are two issues. One is that an LLC is a pass-through entity. That means all profits are expected to pass through immediately to your personal account, or used immediately on business expenses. If you try to maintain a $20k balance for a year, for example, you’ll discover that this balance counts against your deductions for that tax year (effectively a negative $20k deduction). Or at least that’s my understanding so far. Therefore, as with most things, you should ask an accountant for advice. But that’s an unsatisfying answer. My answer was going to be, therefore, you can create a C Corp instead of an LLC, and transfer some of your personal funds into that (by invoicing yourself). The problem (argh, they never end) is that the income will be taxed for the Corp, and then taxed again when you pay from the Corp back to yourself. This is precisely the “double taxation” problem that LLCs were designed to solve! The reason it still might make sense is because of all the incredible benefits of setting up your own company. For example, merely opening a Mercury account at all means you can redeem $5k of aws credits. $5k! I’ve done this! To my surprise, it happened! And that’s just one of like 80 Mercury perks. There are so many, and it’s been so much fun window shopping through them all. It’s how I wound up using quickbooks for example. Plus you’ll have an account that people can wire money to. Mercury has a nice little PDF with all your wire transfer details. It feels like driving a Tesla, whereas US Bank was like not having a car at all. (It was truly one of the worst business banking experiences imaginable. They even managed to lose an incoming $10k wire transfer. Nonsense like that simply doesn’t happen with Mercury.) So there’s a brain dump of pretty much everything I’ve learned over two months of studying this. The takeaway is that if I had a day job, I would set up a C Corp and transfer a few grand to it by invoicing myself. (No, I wouldn’t use stripe atlas. That’s $500. You can do it yourself for $50, and it’s been surprisingly painless. Both Missouri filing and the IRS EIN were entirely online, so you don’t even have to mail anything.) Just, uh… perhaps consider it a side hobby. This kind of nerdiness is uniquely fun to me. I imagine that it’s incredibly un-fun for most people. Treating it as a hobby helps overcome that pain, and the risk turns out to be minimal. I was surprised by that.
- CheezeIt 5y ago
  > . If you try to maintain a $20k balance for a year, for example, you’ll discover that this balance counts against your deductions for that tax year (effectively a negative $20k deduction). Or at least that’s my understanding so far. You don’t get taxed on having a balance; you do get taxed on the income that generated it. (Or am I missing something crazy?)
  - sillysaurusx 5y ago
    My notes so far: https://shawwn.notion.site/Business-Taxes-e9f602855f524618b0a82733ccea9f91 https://shawwn.notion.site/Business-Taxes-e9f602855f524618b0... In one of these links, I am quite certain I saw words to the effect of "if you maintain a balance in the business, then the following tax year, it will count as a negative deduction for the shareholders (i.e. you), because the business type is a pass-through entity, and pass-through entities are expected to pass all of their income through to the shareholders." The fact is, I don't know whether it was an LLC or a sole proprietorship, and I'm now second guessing what I thought I knew. Because yes, it does sound pretty ridiculous that an LLC needs to maintain a $0 balance or else it will penalize the owners of said LLC. That doesn't sound right. And yet, words to that effect were located in one of these links. (Hunting for it now.) EDIT: Welp. Can't find it anywhere. At least I admitted from the outset that "ask your accountant, do not trust me" is reasonable advice for anyone thinking of taking business advice from random HN comments. I'll downshift to "I don't know whether it's a bad thing to maintain a long term balance in an LLC, but I'll be finding out the answer before the end of this tax year." If there's no disadvantage to keeping a balance in an LLC, then I revert to "Just form an LLC for yourself; it costs $50 to do so. And you can keep as much money in it as you want, as long as you don't mind paying income tax simply for transferring money into your LLC." It's possible I was thinking of a negative tax basis for an S corporation, if the S corporation has a long term account balance. But a tax basis is certainly not the same thing as a tax deduction, so I throw my hands up in the air and say "I'll be using a portion of my consulting income to clarify these questions with both an accountant and a lawyer; all advice should be considered suspect."
    - 5y ago

I’ve thought of doing this, but how would it work if you have a normal day job? Can you have your job pay you through the LLC?

by reidjs 5y ago

I’ve thought of doing this, but how would it work if you have a normal day job? Can you have your job pay you through the LLC?

sillysaurusx 5y ago

That’s sadly the catch. I’m sorry — I completely forgot to mention that this works for me because I’m consulting, so businesses pay my LLC rather than me. However, I will say that one business wanted to hire me full time, and I refused and asked for a higher consulting rate, which they agreed to. So it’s not impossible for your next job to end up similarly. But then you don’t get benefits (my wife’s health insurance covers us both), sick days, and you probably have to log hours (to my surprise). So even if it’s more lucrative for me right now, there are definite reasons this path isn’t suitable for everyone. Definitely consider it if you can swing it though. And also, you can simply invoice yourself for services rendered from your LLC, which effectively transfers money from your personal account to the LLC. I’ve had to do this to bootstrap funds into the account (since your balance starts with $0, which is useless). The problem is tax. There are two issues. One is that an LLC is a pass-through entity. That means all profits are expected to pass through immediately to your personal account, or used immediately on business expenses. If you try to maintain a $20k balance for a year, for example, you’ll discover that this balance counts against your deductions for that tax year (effectively a negative $20k deduction). Or at least that’s my understanding so far. Therefore, as with most things, you should ask an accountant for advice. But that’s an unsatisfying answer. My answer was going to be, therefore, you can create a C Corp instead of an LLC, and transfer some of your personal funds into that (by invoicing yourself). The problem (argh, they never end) is that the income will be taxed for the Corp, and then taxed again when you pay from the Corp back to yourself. This is precisely the “double taxation” problem that LLCs were designed to solve! The reason it still might make sense is because of all the incredible benefits of setting up your own company. For example, merely opening a Mercury account at all means you can redeem $5k of aws credits. $5k! I’ve done this! To my surprise, it happened! And that’s just one of like 80 Mercury perks. There are so many, and it’s been so much fun window shopping through them all. It’s how I wound up using quickbooks for example. Plus you’ll have an account that people can wire money to. Mercury has a nice little PDF with all your wire transfer details. It feels like driving a Tesla, whereas US Bank was like not having a car at all. (It was truly one of the worst business banking experiences imaginable. They even managed to lose an incoming $10k wire transfer. Nonsense like that simply doesn’t happen with Mercury.) So there’s a brain dump of pretty much everything I’ve learned over two months of studying this. The takeaway is that if I had a day job, I would set up a C Corp and transfer a few grand to it by invoicing myself. (No, I wouldn’t use stripe atlas. That’s $500. You can do it yourself for $50, and it’s been surprisingly painless. Both Missouri filing and the IRS EIN were entirely online, so you don’t even have to mail anything.) Just, uh… perhaps consider it a side hobby. This kind of nerdiness is uniquely fun to me. I imagine that it’s incredibly un-fun for most people. Treating it as a hobby helps overcome that pain, and the risk turns out to be minimal. I was surprised by that.

CheezeIt 5y ago
> . If you try to maintain a $20k balance for a year, for example, you’ll discover that this balance counts against your deductions for that tax year (effectively a negative $20k deduction). Or at least that’s my understanding so far. You don’t get taxed on having a balance; you do get taxed on the income that generated it. (Or am I missing something crazy?)
- sillysaurusx 5y ago
  My notes so far: https://shawwn.notion.site/Business-Taxes-e9f602855f524618b0a82733ccea9f91 https://shawwn.notion.site/Business-Taxes-e9f602855f524618b0... In one of these links, I am quite certain I saw words to the effect of "if you maintain a balance in the business, then the following tax year, it will count as a negative deduction for the shareholders (i.e. you), because the business type is a pass-through entity, and pass-through entities are expected to pass all of their income through to the shareholders." The fact is, I don't know whether it was an LLC or a sole proprietorship, and I'm now second guessing what I thought I knew. Because yes, it does sound pretty ridiculous that an LLC needs to maintain a $0 balance or else it will penalize the owners of said LLC. That doesn't sound right. And yet, words to that effect were located in one of these links. (Hunting for it now.) EDIT: Welp. Can't find it anywhere. At least I admitted from the outset that "ask your accountant, do not trust me" is reasonable advice for anyone thinking of taking business advice from random HN comments. I'll downshift to "I don't know whether it's a bad thing to maintain a long term balance in an LLC, but I'll be finding out the answer before the end of this tax year." If there's no disadvantage to keeping a balance in an LLC, then I revert to "Just form an LLC for yourself; it costs $50 to do so. And you can keep as much money in it as you want, as long as you don't mind paying income tax simply for transferring money into your LLC." It's possible I was thinking of a negative tax basis for an S corporation, if the S corporation has a long term account balance. But a tax basis is certainly not the same thing as a tax deduction, so I throw my hands up in the air and say "I'll be using a portion of my consulting income to clarify these questions with both an accountant and a lawyer; all advice should be considered suspect."
  - 5y ago