Early last year, I made the decision to incorporate all of my online work under a single limited liability company (LLC).
At this point, I was already making a small side income from my blogging and freelance writing, with all forecasts and expectations pointing to continued growth.
Moving to a formalized business structure made all the sense in the world, since I could take advantage of new tax deductions and try something completely new to me–running a business.
I had all the typical choices available to me: creating a sole proprietorship, partnership, LLC, and all the various forms of corporations one can form in my state. There are a couple of reasons why I picked an LLC over the other available business forms:
Major Reasons for Creating My LLC
Desire to operate as a business. As I mentioned before, the desire to start working online under a business umbrella was already there. The costs in my state for doing a DBA are almost the same as for creating an LLC, with the same local licenses and permits required, so costs of organization weren’t an issue.
Liability protection. This is perhaps the most obvious reason anyone creates an LLC, and it definitely factored into my decision. While a sole proprietor puts all of their personal assets at risk when running a company, an LLC is one step removed from your person, which means that the company does business with others, as opposed to you personally.
Reduced likelihood of an IRS audit. It’s not that I have something to hide, since my wife constantly remarks about how conservative I am with my interpretation of the tax code. It’s just that an audit is a waste of my time and a lot of needless administrative work I don’t want.
Simplicity in administration. While an LLC provides many of the benefits of operating as a corporation (like liability protection), it also offers simplicity in administrating the company, since many of the things that might be required of a corporation, like quarterly meetings, are waived for an LLC.
Simplicity in taxes. The other benefit of an LLC versus a corporation is the way taxes are applied. While a typical corporation might pay taxes in its own right, an LLC is a pass-through entity, so taxes are paid only by its members, in this case, my wife and I. That means the only tax form we have to file for the LLC is a partnership informational return–everything else is handled on our personal returns.
It’s Not All Peachy
Life as an LLC is not all fun and games. There are certain things I have to do, particularly as a multi-member LLC (a partnership with my wife) that a single proprietor or even a single-member LLC would not have to do.
For example, I had to recently purchase a Turbo Tax subscription separately for my business so I could file the appropriate partnership return with Uncle Sam.
I also have to pay a yearly fee to my state to renew my LLC status, and I have to pay yearly fees to my local county for the privilege of operating a business, although these are similar if not just a little bigger than what I’d have to pay as a sole proprietor.
Overall, I’m very pleased with my decision and I’d suggest that anyone who’s interested in forming their own business seriously consider the benefits offered by LLCs in most states.