Hello everyone and thanks for taking the time to read this thread. Hopefully someone can give me a response. I am 19 years old and I'm in college. I use a number of ad networks and I would like to from a business. I would like to: Protect myself legally Tax write off's Separate my personal taxes from my company taxes. I don't want to have to give out my social security number to my ad networks. I am about to move on campus and heard of a number of tax write offs a business can have. Is it possible to write off part of the cost of my dorm since I would be maintaining my sites from my dorm as well? I also need a new laptop (most of my web work will be done on this laptop), can I write this off as a business expense? I believe that I will have a couple employees (maybe 2 max). Which would provide the best tax breaks? Should I form an LLC or a corporation, and what are the differences? I frantically googled and found results for brick and mortar businesses (businesses you can walk into). In my position, what would be the best and most cost effective way to accomplish this?
To answer your question isn't easy - there are pro's and con's either way. But I'll address the highlights here. Please note - I am NOT a lawyer or accountant, you'll need to recheck these to make sure. I'm assuming you're US based - the situation could vary if not. 1) An LLC or an S Corporation will provide the legal liability protection (as long as you make sure that you never mingle personal and corporate funds / activities etc.) However, they are NOT taxed separately - the profits flow through to your personal tax return. Only a C Corporation is taxed separately. 2) Tax write offs : Any kind of business is allowed tax write offs - the rules vary depending on the structure. Consult a tax specialist with estimates of your income (sources), and expenses to understand what's best. - It's unlikely that you can charge your dorm expense - that'll be considered a personal expense, and mingling it with a LLC or Corporation is precisely the kind of activity that'll remove your protection from liability (Google "piercing the corporate veil" for better understanding.) If you're running it as a sole proprietorship (Doing Business As) you MIGHT be able to claim some part of it - but I'd recommend against. A laptop could be bought by the corporation - and therefore written off. 3) Employees - all business structures allow you to deduct the expenses. Check however which option has the least inconveniences (filing, payroll deductions, insurance, etc.). You might find it better to operate as having them contracting to you rather than being employees. Hope this helps. Regards and best wishes
you can form a delaware Coorporation. No Tax . Consult an incorporator for the best solutions. bizfilings is good.
Actually, an LLC can choose how it wants to be taxed - as an S corp or a C corp., or a partnership. LLCs are slightly easier to form, and the paperwork can be a little easier to handle, unless you choose to be taxed as a corporation in which case you should probably follow the requirements of a corporation even if not reqiured of an LLC (directors, annual meetings, etc.). For your purposes, an LLC is probably a good idea; you can choose your ax structure qwhile obtaiing the liability protectio of a corporation. Hwowever details vary by state, so be sure to talk to a lawyer, and probably also an accountant as not all lawyers are aware that the IRS Code allows you to choose your taxation structure - and it has to be done within a certain number of days of formation, I think 45. (Not all accountants are aware of it either.) If you want a good book on the subject try Nolo Press website - they are an awesome DIY legal site and have how-to books on LLC law, also found in just about every major bookstore and online. It's nolo(dot)com.
Thanks for the reply and the site. I will most definitely be looking through it, and then speaking to a lawyer/accountant.
Good advice so far. I have a bit of advice since I was in your situation not long ago, and you might want to think about this if you're dealing with financial aid for college. Say you're going to make lots of money in this new venture. That will severely cut into any financial aid you're getting. It's possible to set-up a deal where you have another member of your LLC taking most of the profits for the first 2-3 years. You can kind of defer your money till your senior year when financial aid isn't an issue. Of course, you need to have a complete legal agreement around this to make sure you do indeed get all that money back
If anyone has a single person LLC, how did you go about making an operating agreement? I didn't think one was needed for a single person LLC but after researching it some more it seems you need one in place to keep your personal liability protection. Also how technical do you get over separating your personal and business expenses. Obviously you shouldn't use your LLC credit card to go to a movie or buy things unrelated to the business. But is it still considered mingling funds if you use your personal card to buy things for the business? I wouldn't buy major things like hosting or PPC costs but what about picking up some pens or paying for internet access with your personal funds since for at least some of the time you use it for personal use. From the IRS perspective you are only hurting your self since you can't deduct those expenses but I'm thinking this might "pierce the liability veil". My concern is if you use a stamp, pen, or old computer you bought with personal funds or don't keep track of the miles you can deduct when you drive to staples or your accountant; you would lose your liability status. From what I read it seems it is easy to pierce the veil of a single person LLC and it scared me and was wondering how others dealt with these issues.
A S-Corp is a separate legal identity like a person with its own tax id number. it is taxed as such. you can write off off-campus housing, payroll, computers, food pretty much anything like meetings with clients i always write the food off on those.
That's exactly where my mind wandered. What exactly would be classified as "mingling"? I do not want to lose the liability status (the most important). I am still trying to find someone that has free consultation, and I'll update with the info I have found.