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Hi Taylor
- I've been working as a part-time consultant for the last few years,
advising business owners and whatnot. I'm wondering if it would help
or hurt me to form an LLC. The business is just me and I make probably
$25,000 a year.
Hi Elizabeth - Congratulations on running your own business! Sounds
like things are going well. When it comes to forming an LLC, you'll
get different advice from different schools of thought. It comes down
to personal preference most of the time, so let's just get into the
details and you can decide what makes the most sense for you. |
1. Limited
liability company. As the title suggests, an LLC has some
liability protections that a sole proprietorship does not. Essentially,
you're less vulnerable to someone coming after your assets when
you've made the move to incorporate. Being protected is never
a bad thing—the question is more about the actual risk you
face without the LLC status. A lot of people feel comfortable
running a sole proprietorship for the lifespan of their business,
especially if they never branch out and hire employees. That said,
depending on the companies and professionals you're consulting,
an LLC could offer important protection.
2. Costs and fees. Some business owners hesitate for fear
of what expenses they might incur once they incorporate. Generally
speaking, LLCs don't run up the bill. Your tax structure stays
the same as it was before so it's not like you have to start shelling
out more than you're earning. The process isn't 100% free, of
course, and the cost of registering your company will vary depending
on the state you live in. It's really easy to start an LLC, but
it's not as simple as declaring, "I'm an LLC now!" and never having
to worry about it again.
3. Pros and cons. The pros are mostly covered in the first
bullet point here: you get to worry less about risk exposure as
an LLC than as a sole proprietorship. You also have the psychological
benefit of customers seeing the LLC after your title and trusting
the validity of your business a little bit more. One of the biggest
drawbacks is learning to keep your personal and professional accounts
separate, as you have to make that distinction much more clear
with an LLC. If you're not great with keeping track of which expenses
to categorize as business vs. personal, that's something you'll
definitely want to fix before incorporating. The mess caused by
bad bookkeeping gets a lot messier once you've formed an LLC.
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| I think it's
definitely something you should consider, Elizabeth. If you think
your business will keep growing, I feel like forming an LLC is the
right choice. Just make sure to read up on what forms your state requires
and then get all your ducks in a row before taking the plunge. Good
luck! |
| Legal Disclaimer:
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.
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