Did you start offering to take photos of friends and family for free because you just enjoyed doing it? Maybe it has even taken off a bit, and people are reaching out to book a session.
It may be time for you to officially start a business.
Technically, as soon as you make over $400 in a calendar year, it is considered a business. Which means you need to officially file it with the government. The two main business types when starting out are LLC and Sole proprietorship. Today, I am going to break down the difference a LLC vs sole proprietorship.
What is a sole proprietorship?
A sole proprietorship is owned by the individual running it. So, you file taxes as yourself, meaning you only file personal taxes. Your business’s income and expenses are added to your personal tax return with no additional forms needed; however, this does mean that you are personally on the hook for business liabilities. Thus, there is no separation between your personal and business assets and expenses.
What is a LLC?
A single-member LLC is created by filing paperwork with your state. This lets you separate your business from yourself, the owner. This protects your personal assets from liability. If you were to be sued or even worse, bankrupt, the bank or another business could not go after you personally. The business is now it’s own legal entity. In addition, the business has the flexibility to choose the most cost-effective tax structure and doesn’t default to your personal tax bracket.
LLC vs Sole Proprietorship
So which should you select? At face value, a sole proprietorship is a lot easier in terms of start-up and tax prep. There is really no paperwork to start it up other than a DBA (Doing Business As); however, in the long run, an LLC is what I recommend! An LLC protects you personally so that, in the case of a lawsuit, someone can only go after the money in your business and not everything you own personally.
Take the extra time to set it up because it will be worth it if something does happen.
Did you find this helpful when deciding between a LLC or sole proprietorship? Do you have more questions? Click the link to join me on my next Live Q+A where you can ask me any questions, so we can continue to move your business forward!
XOXO ~ Heather Marie
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