There may be opportunity for your business. Check around.

June,

Your book, website, and blog have been very helpful, but I have a question that I don't think you have covered.

My husband and I have owned a construction company in Virginia Beach, VA since 2008. We are registered as a partnership (federal, state, and local) with my husband as the primary or responsible party, but we have not filed any taxes as such yet. The majority of our business is currently in my husband's name, but in the future, we would like to become SWAM certified, which requires me to have the majority ownership.

My question is: now that we know we should not be a partnership and one of us should be an employee, how do we decide who it should be? We would like Jason to be the employee, but that would require changing everything.

Also, is going from owner to employee acceptable to the IRS?

Thank you for your help.
Thesha


Hi Thesha,

If there were no income to the partnership in 2008 you may be able to dissolve it. Have a partnership return filed with zero income and marked as final and have your husband file as a sole proprietor claiming all income.

There is no tax problem in switching business entities. If you manage the business and your husband does the manual labor that might make you the boss. However, you should check with a local tax pro who understands SWAM -- Small, Women- and Minority-owned Business requirements. You don't want to be disqualified because it may look as if the business really belongs to your husband but you are the minority and so that's why you're doing the switch.

Be sure to use someone who has SWAM experience.

I'm pleased my writing has been helpful.

Best,
June

EINs and LLCs: Updated

Dear June,

Subject: "Payee" Name on Checks that are Written to Me?

I am an LLC operating as a sole proprietor in CO. The IRS does not require an EIN for my situation, so I have never used one. I have always instructed clients to write checks to my company name. Twice in the past year two clients received letters from the IRS. I haven't seen the letters, so I don't know the exact context, but the bottom-line is that my clients believed that if I wanted to continue to receive checks with my company as Payee, then I would have to provide them with an EIN.

For tax purposes, the IRS site clearly states that an EIN is not necessary for an LLC operating as a sole proprietorship.

For legal purposes, it's my understanding that you should always receive checks in your company name. So, how should a check be written?

Additional Information that May Be Relevant I like "clean" tracking, so I deposit the checks into a business account from which I also pay business expenses. When I want to pay myself, then I transfer funds from my business account to my personal account.

An EIN has seemed unnecessary, and it's never been a problem until this year. I loathe the idea of adding yet more numbers to my life. Is it feasible to continue avoiding an EIN

Thank you in advance for your guidance!

Rose

P.S. I diligently searched your book (which I bought many years ago, and often refer to and recommend to others). Trust me, I'm not just flattering you; your book is great and I wonder when you will write an update. I also searched your blog. I'm confident that either (a) my question is not already answered on your blog, or (b) I don't know the right key words to use when searching the book's index or searching your site.


Dear Rose,

This is an update to an earlier post on EINs.

The IRS now says that an LLC must have its own EIN.

If at all possible get a copy of the letters your clients received from the IRS. You said the the clients "believe" they can't pay you unless you have an EIN. Well ... what's that really mean?

You are also correct that in order to maintain the protection of the LLC checks should be made out to the LLC. Whatever name your LLC is registered as, is the name the checks should be made out to. Be sure you have that name on invoices and business cards so that clients will have a reference.

If your clients plan to send you a 1099 at year-end they will also need your address and your EIN.

Thank you. I am so pleased that you use my book as a reference. That is what it is meant for! By he way, all the basic information and how-to instruction in Self-employed Tax Solutions, although written several years ago, still applies for 2008 tax returns and so far for 2009 as well. Specific numbers may have changed but method has not. For instance, although the per mile rate for auto deduction changes every year, or even every half year, the all-important simple method I explain for keeping mileage records and the deductions for auto expense have not changed.

Best,
June

Partnership & Home Office

June,

My wife and I started an independent consultant business last year in Fairfax, VA. We file partnership returns and have a home office. In doing our taxes, we were told that home office expenses are supposed to be captured in Schedule E and attached to Form 1040.

However, another advisor also said that we can reimburse home office expenses throughout the tax year through our income distributions and then capture them as other deductions on Form 1065 (the partnership return). This would be easier since we wouldn't have to fill out Schedule E so that is what we did.

Did we do the right thing?

Thanks, Matt


Wrong thing, Matt. A basic, really basic, piece of info on tax prep: If there is income from a partnership you must include that income on a Federal Schedule E. This is another example of why I think indies should not prepare their own tax returns.


Since a partnership is the least tax advantageous entity for a husband and wife business you might want to read some posts here payroll -- spouse as employee or here husband-wife business to learn more.

Partnerships have very specific rules on deductions. If you want to deduct the costs of a home office, although not required, I would suggest writing into the partnership agreement that home office use is expected. Deductions for a home office may be taken on Schedule E only. This will reduce a partner's self-employment income and self-employment tax liability.

You may not take home office expenses on the partnership return. And, do not rent to your partnership. That's a real kettle of worms and maggots!

Best,
June

DBA is not a business entitiy.

June,

I read your website column, How does a self-employed pay himself? and need to know if the answer to that question applies for DBA businesses as well.

I opened a business checking account under the name NY Techquest, and I have deposited all payments to the business into this account. My question is: Is it legal for me to withdraw these funds to use for personal purposes?

Everything is under my personal SSN, and I have not applied for a business license in the state of NY.

Please advise.

Thank you,
Janet
New York City, NY


Dear Janet,

Before you do another thing regarding your business you need to get a lot more information. DBA is not a kind of business structure. DBA stands for "doing business as" and simply means that you are not using your own name as your business name.

Go here DBA - Doing Business As to view several posts on this blog about DBAs.

After you know what business structure you are -- for instance, sole proprietorship, partnership, S-corp -- then you can determine whether you can just take money out of the account or whether you need to be n payroll.

Best,
June

Have a question? Do a little legwork.

Hello Indies,

I have found that for all the unique qualities indies possess many do share the general public's tendency of research avoidance. Indies need to be especially attuned to doing research because they don't have big daddy in the personnel office to whom they may address their concerns.

My blog is a good place to start sharpening your research skills. Before you "send June your question" check out the categories on the left and the "search" facility in the upper left corner. There's a good chance your question has already been answered. And, if not, you'll be able ask a question that utilizes a basic understanding of your concern.

I do read every question I get from this blog and from my website. I answer or comment on just about all of them either directly via email or here in a post. So many of you have questions on similar situations -- but with a twist here or there -- that I am going to try something a little different. I am going to composite or group similar questions and provide an answer. Or I'll show you questions I just received that have already been answered here on the blog.

Let's see if it works. Here's an IT consultant who asks about a husband-wife business and about forming an LLC. Both questions are already fully answered on the blog.


Hi June,
I was googling on the net and found your website. Its cool!. I am an IT consultant planning on establishing an LLC. I am not sure whether starting it up as a single member LLC (myself) or multi member LLC (both me and my husband as members) will help us taxwise? My husband is an full time employee, but he would be taking care of the business (IT consulting firm) completely (75%). Would it be beneficial if my husband is the owner and I work as an employee for him? Please let me know what options would best for us. Also this is the first time, i am planning on establishing a business, so any help is appreciated.
Thank you in advance - Chris from Chicago.


If Chris takes a look at the category list on the left side she will see husband-wife business has 12 posts and business entity -- LLC has 11 posts. That's where the answers lie!

And, as far as "any help is appreciated." Indies, read, read, read. There is so much useful tax-saving and time-saving information at your fingertips!

Don't let them force you to incorporate!

June --

I have been a designer, illustrator, children's book author for 3 years as a sole proprietor.

A company I've been freelancing with for years has just requested I incorporate so they can write a check to me as a business instead of writing a check to me as an individual.

I've looked into S-corp and LLC, but before I spend the money I was wondering the following:

1. Will the combination of a DBA and an EIN do the same thing as an LLC in terms of my personal information (such as SS# and name) not being disclosed to the company and instead appearing as a business?

2. What are the main advantages/disadvantages of S-corp v. LLC

Cambria from Brooklyn


Hello Cambria,

Yes, a business name and an EIN will not expose your name nor your social security number. It's a terrific way to get around the request of your client. For example checks can be made out to Design Delights, ID# 22-1111111.

You may apply for an instant EIN -- stands for employer identification number -- here.

WARNING!! Do not incorporate.

OK. Now that I've said that I'll review a couple things I've already said on this blog and elsewhere.

An LLC is a Limited Liability company. Note that the “C” means “company” not “corporation.”

Be aware than an LLC is not a Federal tax entity but a legal business structure set up under the laws of each state. Because LLCs are formed under 50 different sets of state law, regulations governing an LLC depend upon the state of organization. The legal treatment of an LLC may vary from state to state. If your business is an LLC it has liability protection similar to that enjoyed by a corporation. You are not personally liable for the debts or liabilities of the LLC. That means a disgruntled supplier could go after your office equipment (a business asset) as payment for a delinquent invoice but could not confiscate your kitchen appliances (personal assets).

The legal entity, LLC, may be set up for tax purposes as a sole proprietorship, a partnership or a corporation.

Go here for my various posts on LLCs.

Be sure to check out the book that can simplify your tax and financial life, and save you money! Self-employed Tax Solutions.

Best,
June

The Many Advantages of Hiring Your Spouse

Oh man. The rumors are flying. The “Small Business and Work Opportunity Tax Act of 2007” has stirred up a lot of indies. Confusion reigns about how this legislation impacts a husband-and-wife working relationship. Is opportunity really knocking?

There are several posts on my blog about how best to set up a business when husband and wife have a joint venture or when one spouse helps the other. I’m now going to explain those husband-wife arrangements in detail that goes beyond previous posts. It’s somewhat complicated though, so don’t listen to White Stripes and read this at the same time.

Here are some excerpts of questions I've received.
From Cliffside Park, NJ:
I have a question regarding hiring a spouse. You advise doing it...however, don't you have to pay for their FICA and Medicare? Also, how is it beneficial to one to do this? How do you get health care insurance for them and also get it for yourself?

A graphic designer from La Center, WA:
I have been self-employed for 33 years, and most of that time my wife has helped me (proof reading, accounting, taxes, etc.) while she was also teaching. Now she has left teaching and I want to take advantage of the new husband and wife partnership clause in the 2007 tax laws. But I am not sure how to do that or if it is better than taking her on as my employee. She is only 56 and wants to continue earning social security credits.

Website designer from Rio Rancho, NM:
I found a discussion online that states that if you live in a community property state and you're in a 50/50 husband/wife partnership SE taxes won't apply to one spouse if they have another job? Am I getting this right? I live in New Mexico which I read is a community property state and I was thinking about going into a partnership with my husband. I wanted to establish my web design business as an LLC and I would be doing 100% of the work. My husband has his own separate career which he loves and has great health care so employing him instead is not really a consideration. If we established a 50/50 partnership would only my half of the income be taxed instead of his too since we live in a community property state? Or would it be best to go solo?


Let’s look at a few scenarios based on situations of my own clients.
1. Husband and wife work jointly and equally, although each has unique skills, in a business that specializes in the IT implementation of a specific software for hospitals.

2. Husband is a technical producer for television and writes about and consults on electronics for live performances, schools, and the environment. Wife is a researcher, editor, writer in the same field.

3. Wife is a sculptor and husband builds her display cases, does all her recordkeeping and manages her show schedule.

Think of the first scenario as a 50/50 work split;
The second as the husband’s share is 70% and the wife’s is at 30%;
The last as the wife at 80% and the husband at 20%.

In each of those work relationships the structure that is the most tax-advantageous, the least complex, and costs the least in accounting fees is: One spouse has a sole proprietorship business with the other spouse as employee.


Tax situation
I’m going to use scenario #3 -- the 80/20 split -- to explain the tax advantages. If the sculptor has a net self-employed income of $50,000 and from that she pays her husband wages of $10,000 for his services, then they are simply moving the $10,000 income from one place on the tax return to another. There is no savings of income tax. And there is no savings in SE tax. (Remember, SE tax is Medicare and social security tax, also known as FICA.) The husband’s wages from his wife’s business count toward his social security credits.


Tax advantages
*** If the husband has already paid the maximum social security (that was $97,500 in 2007) through his regular job he will not have to pay social security tax on the wages paid to him by his wife.

*** The wife may provide him and his family with medical, and dental coverage. If he already has coverage through his job she may provide him with supplemental coverage. Or if coverage from his job does not include his spouse and/or children, she can fill that gap with additional coverage. These are business deductions for the wife and not taxable to the husband.
The insurance may be in the name of either spouse. It does not have to be purchased by the business or in a business name. You may keep the medical insurance you already have.

*** The wife may provide the husband with life insurance. Premiums are deductible from her business .

*** She may give her husband-employee a pension. The tax savings from this could be substantial depending on the type of pension and whether her husband has pension coverage at another job, also whether they have extra money to contribute.
Hubby may contribute his entire salary toward his pension. In this example, that would mean that the $10,000 she paid him is not taxable income. And wife-employer may contribute an additional very large employer’s share toward her husband’s pension. That, too, is a deductible business expense.

*** Were he not her employee and he accompanied her on a business trip, as helper, they could not deduct his travel expenses. As her employee, the husband’s expenses are her business deductions.

*** An employer-employee relationship simplifies the deduction of many business expenses, especially auto and home office.


Complexity and Accounting Fees
Tax preparation for a sole proprietorship is part of your individual tax return.

Recordkeeping for a sole proprietorship is easier than for any other business structure. Remember, a sole proprietorship may be an LLC. Read about it here Sole Proprietor as an LLC


Now, what about that Tax ACT ?
If a husband and wife jointly own a business and the business is not incorporated they do not have to file a partnership return. They may file as a sole proprietorship, using a Schedule C as part of their personal tax return. They split the income and the SE tax based on each one's share of income.

Prior to January 1, 2007 only those who lived in a community property state could file as solos. A husband-wife business in other states had to file as a partnership.

So if a couple were to have a 50/50 business with a net income of $50,000 then each would pay tax on $25,000. There is no income tax savings. If either spouse were over the maximum for social security tax then that spouse would not pay SE tax on his or her self-employed income.

To answer the questioner from Rio Rancho: The Tax Act states that in order to split the income each spouse must materially participate. “Materially participate” means that each spouse must do some of the work. If the wife has no connection to the business but has met the social security maximum via another job don’t get crafty by saying that this business is 95% the wife’s and only 5% the husband’s. The beady-eyed IRS will see this as just a ruse to avoid SE tax. It’s a bad idea.

OK. Now you may listen to White Stripes.

Husband-Wife Business? Don't set it up as a partnership.

June,

I am preparing to take the plunge into SE and your book Self-employed Tax Solutions book has been an excellent resource.

Due to the work I do and subsequent contractual liability concerns, it was in my best interest to form an LLC, which I did as a single member.

My spouse will work in this venture in a part-time/full time business management capacity while I provide billable consulting services.

Are we better off with my spouse as a member, thus a partnership LLC, or as an employee in a single member (sole proprietor) LLC? I want the maximum liability protection, and equal "ownership" but do not want to give Uncle Sugar anymore than I absolutely have to. Since we file jointly, I'm thinking the tax advantage lies with the sole proprietor option but need your advice.

Thank you in advance.

Dean from Fort Collins, CO


Hello Dean,

Very smart move -- getting information before you make a decision!

An LLC treated as a "disregarded entity" is a sole proprietorship.

The most tax advantageous business structure for a husband-wife business is that which has one spouse as the sole proprietor and the other spouse as an employee of the sole proprietorship.

The least tax advantageous is a husband-wife partnership.

For an understanding of the advantages read my posts in the category payroll -- spouse as employee.

Glad my book is a good reference for you. Please tell your indie friends and colleagues!

Best,
June

Husband & Wife Working Together: Incorporate or Not?

Dear June,

I am a freelance designer. My husband works for an advertising company. Once in a while he helps me out with my work. My friend's accountant told her that I'd save a lot of money if I incorporated. Should I incorporate and put my husband on my payroll? I'm confused because I don't really know how a corporation works.

Thanks.
Janice from Ohio


Hello Janice,

Do not incorporate unless your personal tax pro analyzes your unique situation and gives you specific, understandable reasons why it would be better for you.

Here's a snapshot of how a corporation may handle income:
In a corporation, the tax benefit of retained earnings -- that's corporate profit that is not distributed but kept in the corp for future business spending -- comes into play only when you make a lot more money than you need to live on. By doing this, you leave some of the earnings of the corp in the corp and do not have them available for living expenses.

In your corporation you would earn money as a designer. These would be your wages. Your husband would earn wages. The corporation would have a profit on which the corporation -- that's you -- would pay tax. The corporation profit -- in the form of dividends is distributed to you.

On yours and your husband's tax return you include your wages, his wages and the dividends. You pay tax on that income. Note that on the dividends, the corp -- you -- have already paid tax once. Now you will pay tax on those same dividends again.

You must pay whatever fees your state requires for setting up a corp. You must pay an accountant to help set up a corp and every year to prepare a corporate return for the feds and also for the state. There are various required papers, such as corporate minutes, that you'll need to keep.

All this is a hassle and expensive and so you don't want to do it unless you must.


When you have a sole proprietorship and you hire your spouse as your employee this is what happens or may happen:
-- Your wages to him simply move the income from one part of the return to another. No tax change. -- If he must accompany you on a business trip, his expenses are business deductions. Not so if he were not an employee.
-- You may provide him with a health plan that covers his family [that includes you]. All family medical expenses then become deduction against your business income.
-- You may give your spousal employee dental coverage, life insurance, disability coverage, a pension -- all are deductions against your business income.

And, if he works out really well, you may give him a raise.

Keep in mind: A sole proprietorship may be an LLC. Read about it here Sole Proprietor as an LLC

Best,
June

SE Tax and Partnerships

Hi,

My husband currently receives a 1099 & is self-employed as a territorial sales rep.

He pays alot on self-employment [SE] tax. We are thinking about opening up a retail store in which we would be partners in an LLC.

Does The Small Business and Work Opportunity Tax Act of 2007 mean that we would not need to file for SE tax on this small business? If I am understanding it incorrectly & we still do need to file SE tax, is there some way we can combine his territorial sales rep work in which he already pays SE tax with the small retail business, so that we are not paying SE tax on two related businesses?


Also, does the Small Business and Work Opportunity Tax Act of 2007 eliminate the double taxation that occurs with husband & wife partnership llc's?

Thanks, Eileen


Hello Eileen,


Wow! You are mixing up apples, potatoes and Fruit Loops.

First of all, there is nothing in the Small Business and Work Opportunity Tax Act of 2007 that eliminates SE tax. To make sure there was no hidden paragraph that I missed I called the IRS to confirm. If you found something that says it's been eliminated, please send it to me.

Second: There is not now nor was there ever a double taxation of SE tax. Read What is Self-employment (SE) Tax? on this blog.

In a partnership SE tax is paid on the net profit. For instance, if you and a friend were 50/50 partners then each of you would pay SE tax on half the profit. A husband and wife partnership would also split the profit and pay SE tax on his and her share.

By the way, a partnership is the least tax advantageous business structure for a husband and wife business. A better way: One spouse as owner, the other as an employee.

Best,
June

LLCs, Partnerships and Self-employment Tax

Rhonda from NY asked a multi-part question a while ago. One part of her question was answered here I am an LLC. How do I pay taxes? And now that I've successfully met the October 15 deadline for a lot of slow-to-get-to-it clients I can answer the other part of her question.

Rhonda's situation and questions are:

I am starting an LLC in NY with 2 other members. I am the managing member and the other 2 will not participate in management issues.

I understand I am subject to self employment [SE] taxes and they are not, but is this done only after profits/losses are distributed?

If the business has no net income, does that mean I pay no self-employment taxes?

I hope I did this the right way in leaving this question here and not posting a comment on line to you answer. This is my first time doing something like this and I do not know the "proper" procedures.

Again, thank you for you help.
Rhonda ... Bronx, NY


In a typical partnership, several people with different complementary skills get together to form a business. Rhonda doesn't say what kind of business they have formed so let's make one up to facilitate my examples. Since there are so many IT folks out there, I'll give Rhonda an IT business.

If all three participate in this business then they are all general partners. If they are equal partners each will share in 1/3 of the loss or 1/3 of the profit of the partnership. If the partnership has gross income of $50,000 and expenses of $20,000 then each would have income of $10,000 subject to income tax and SE tax. If the partnership had no profit, then there is no income or SE tax liability.

Profit is another way of saying net income -- that's gross income minus expenses -- and each partner will receive a partnership K-1 at year-end stating income and whether it is subject to SE tax or not.

An alternate scenario has Rhonda as the only one with technical skills and the only one to work for the partnership. Only her income is subject to SE tax. Partner #2 did nothing for the business other than contribute money and partner #3 did nothing for the business other than contribute equipment. Their partnership income was taxable but not subject to SE tax.

To recap: Simply not being part of management does not make the other partners exempt from SE tax. Their relationship to the partnership must be limited. That means they do not work in the partnership. For their portion of the partnership profit they may do things such as:
** Put in money
** Contribute equipment
** Loan a name or reputation
** Perform a specific service -- not related to the nature of the business, for instance -- legal or accounting, or logo design for which they'd receive a Form 1099-MISC from the partnership.

One last note: Of course, Rhonda should not set up an LLC and form a partnership without guidance from her tax pro.

June Walker

Web developer with lots of questions

My answers to Peter are embedded below. Think that makes it easier with so much going on in his correspondence.
-- June


Hi June,

Great site. Thank you. I must say, a lot of info - possibly too much to find all the questions I have. Try the "search" box in the upper left of the screen. It may help.

I am a web developer. I started an LLC (sole proprietorship) in Ohio last month. I have couple of clients I make websites for (some for over 2 years now) and as expected I have some questions about what my new "status" brings:

1) When I receive checks, they all go to my business account. I read on your site that as a sole proprietor I am not an employee but rather I AM the company itself. Therefore: How do I pay myself? You don't pay yourself. You may take money whenever you like. You "income" is the profit your business has at year end. Can I just take the money from the same bank account, do I write myself a check, or what? Write a check to yourself or to cash.

2) How do I pay taxes? Read this post Estimated Taxes I have an EIN, I have no employees, and I have some freelance developers doing some work for me at times - I consider them as vendors, not employees.

3) What are the benefits of having an accountant, Jack Smith has a web making program. Why does he need a web developer? I do not do much business really, one or two checks a month come in... I read somewhere that in order to comply with the Limited Liability part, I need to separate my business and personal expenses. If you are an LLC you must have a separate checking account and a separate credit card to maintain limited liability.This comes together with Q#1: If I pay myself, transfer money to my personal account, or buy personal things directly with my business credit card, does that in any way change the LL part of the LLC? Yes.

4) How do I know if I should charge my customers a Sales Tax?? Every state is different. Call your state tax office.

5) What can you do for me, besides making my life easier by answering the above questions, or at least pointing me in the right direction? Contrary to most laymen's thinking, tax preparation for indies -- and many other situations -- is not simply putting #s on specific lines. There are often many choices for the same kid of deduction, there is different tax treatment for similar situations, there are different kinds of pensions for indies depending on income, age, family situation.

Just like Jack Smith doing his own website. For some Jacks it might be OK for other Jacks it might mean a big loss of money.

Thank you so much in advance! You are very welcome.

I can tell by your questions that you would benefit from the info in my book, Self-employed Tax Solutions. You might want to check it out.


All best, Peter, OH

I'm an LLC?????

June --

How do I dissolve from an LLC and re-organize as a sole proprietor?

Bill from Camas, Washington


Bill --

I think you are something but you don't know what that something is. So many people form an LLC without a clue as to what they are doing. Read this post Sole Proprietor as an LLC on my blog -- and also read the raleted links which give more info on LLCs. . An LLC can be a sole proprietorship.

-- June

Multi-faceted Sole Proprietorship

Dear June,

Thanks for the great site! I am a teacher/tutor/editor/writer.

This year, I have taught part-time at a university and worked as a temp. I want to set up a tutoring business. I was advised that I could cluster all my writing-tutoring-etc. earnings together by starting a "sole proprietorship" in my own name. 1. Is this true? 2. If so, wouldn't it be better to register it officially? (one of your pages starts by saying you needn't, and then goes on to say there are many situations where you do).

I like the "one name" idea so I could put the income streams together, though I prefer a trade name for privacy reasons.

However, given my situation, what would you suggest is the best way to go forward.

Thanks for your help!
Anna from California


Hello Anna,

Glad you like my site. Thanks for letting me know.

Yes, all elements of your business are related and so you may be one sole proprietorship. [Of course, this does not include any income as an employee.]

I don't know what you mean "register officially." Other legal matters you must take care of depend on on local law and state sales tax. However, those requirements have no bearing on your being a sole proprietorship.

A trade name -- DBA, doing Business As -- does not mean that you cannot be a sole proprietorship. See the "business name" category on the left.

All indications are that sole proprietorship is all you need. If you haven't already, be sure to read , I am a Business on my website.

Do I need a business license?

June,

My position was eliminated from my company but I am approved to be an outside consultant (speaker). Should I get a business license or DBA? They will pay me via 1099. Right now I have 2 engagements lined up but hopefully there will be more in the future.

Thanks.
Kim


Hello Kim,

You do not need a DBA. Read DBA: Doing Business As -- It's just a name to understand what DBA means. Also, you need no license unless your profession requires it. Here's a column on my website you might want to check out I am a Business.

Wish you success!
June

I am an LLC. How do I pay taxes?

Hello June,

I am glad I discovered your blog. Already I learned a great deal! Anyway, I am starting an LLC in NY with 2 other members and am a bit concerned about messing up with estimated & self employment taxes. I am the managing member and the other 2 will not participate in management issues. It is a brand new business so how will estimated taxes be calculated?

Also, I understand I am subject to self employment taxes and they should not, but is this done only after profits/losses are distributed? If the business has no net income, does that mean I pay no self-employment taxes?

Thank you for any help you can give, I just want to get this right. Rhonda in the Bronx :)


Hi Rhonda,

I, too, am glad that you discovered my blog!

You say you are an LLC with other people. I assume from that you have formed a partnership. I cannot say it frequently enough so i will take another opportunity here: An LLC [Limited Liability Company] is a legal entity and can be a sole proprietorship, partnership or corporation. More info here LLC? Incorporate?

As a self-employed you -- and your partners -- [I am not sure what you mean by "they should not"] must pay federal and state income tax and self-employment [SE] tax. Depending on your income amount you may also be subject to New York City Unincorporated Business Tax. SE tax is based upon your business net profit. No profit means no SE tax. Income tax is based upon your net profit and all your other income as well. Taxes are explained on my website here Taxes: Which ones and how much do I pay?

You may have to pay estimated taxes. It depends on business and all other income and also how much may be withheld from your spouse's income, or via a pension, etc. How much and when to pay estimated tax is explained in this blog post Estimated Taxes .

Wish you much success!
June

DBA: Doing Business As -- It's Just A Name

Good afternoon, June,

Can a DBA have its own invoices, purchase orders and so on? Where can I find out about my responsibilities and my rights.

Thanks John from Forrest Cypress, TX


John,

DBA means Doing Business As and is just another way of saying that you John Jones are naming your business something other than your name. Perhaps you've named your business, "John's Business."

Take a look at this column DBA:Doing Business on my website.

DBA is not a business structure or business entity. You could be called John's Business were you a sole proprietor, corporation, partnership -- doesn't matter. There's more info on this at my blog post Which business entity is best?

Yes, you may write purchase orders using your business name. You need to check with your bank about depositing checks made out to your business if you don't have a business account.

John, I can tell from your question that you need a lot of basic information, too much for me to provide in one email. I recommend you start by reading a short column on my website, like: Is it a deductible business expense? and Estimated Taxes, a post on my blog.

If you like what you read there, I encourage you to buy a copy of my book, Self-employed Tax Solutions. The book answers many of the most common self-employed questions in the same easy-to-understand style you'll find in my columns.

Best regards,
June Walker

Sole Proprietor as an LLC

June --

I am a signage broker: I design, subcontract construction and installation of business advertising and identification signs.

Without operating my business as a corporation, or llc, my insurance agent has informed me he has no insurance product that will protect my personnel assets in the event of a company liability claim. Since you advise against forming a corporation, how then should a sole proprietor provide for this financial risk?

Jerry


Hello Jerry,

An LLC, limited liability company, is not a corporation. You may form an LLC as a disregarded entity. That means that you can be an LLC sole proprietorship. In this way you get ease of formation and recordkeeping along with asset protection. If you need even greater protection than afforded by an LLC and liability insurance then a corporation may be the way to go. But, before you do that, discuss it with a business attorney in your state -- not your insurance agent -- and make sure that you understand all the alternatives.

Be sure to read my post LLC? Incorporate?

I also recommend a book by Anthony Mancuso -- LLC or Corporation? How to choose the right form for your business. It's simply written and gives you a lot of basic information.

Best,
June

Which business entity is best?

June --

I am a Mortgage Brokerage / Home Remodeler.

What is the best business entity to form to minimize tax and personal liability as a home remodeler?

-- Guy


Hello Guy,

If you use the right tax professional, and set up the correct self-employed pension, then you should be able to get get every tax break you need as a sole proprietorship. Sole proprietorship is also the easiest and least expensive business structure. .


If you need liability protection then register as a Limited Liability Company [LLC] set up as a sole proprietorship. Then look for any other potential liability and get additional insurance to cover those. Take a look at my post LLC? Incorporate? to learn a little more about LLCs.

Don't let some fast-talking accountant bully you into a business structure that you don't need! You may need to incorporate because of factors not evident in your email. If you do, be sure that you understand the reasons why and also what are your obligations regarding maintaining the protection of a corporation.

BTW -- You don't say whether or not you are married. They are many benefits to hiring your spouse.

Best,
June

Husband & Wife Business

June,

I am a 1099 web developer. My wife makes jewelry which she sells in her spare time. Can we roll both of these businesses into one entity (a DBA maybe?) to be able to deduct her expenses for tools and supplies.

Thanks!
Jason


Hi Jason,

This is how to do it: One of you has a sole proprietorship business that legitimately combines all services and products that you both offer. One spouse becomes the employee of the spouse with the business.

There are many benefits to this type arrangement, including medical and pension. There'll be a posting soon explaining all the benefits.