Have to give you credit, not many people are doing what you do, in terms of setting up a business, mine future business is homebased and outdoor. You are making this so easy to set up.. Can’t thank you enough..keep up the EXCELLENT job..

Willie…

I will tell you that finding a tax professional to set up your books, and guide you with your tax strategy is some of the best money you can invest. You are about to open yourself up to a world of tax advantages and you want to make sure you are taking advantage of all you have coming to you.

Thanks for your question, and good luck with your new venture!

Brian

Thank you SOOOO much for this advice. It’s much appreciated. All the Best Ian, I’ll be subscribed to your blog looking out for more tips.

1. There can be some benefits to filing in another State. Delaware and Nevada have no state income tax, and I know a lot companies that have real estate (like when you own your office building) form Delaware companies, but I am not sure why. If you form a company in another state you WILL need to have a local registered agent, but the filing service can usually serve that function for you (I know my recommended resource will). To get the tax benefits I believe you have to do business in that state, but for any tax issues it is always best to check with an accountant. If you don’t have a CPA, I suggest you pay for a consultation with one in the beginning. Believe me when I say this is money well spent. Another benefit is that Nevada and Delaware have some tight privacy laws that some people like. I always file in the state I do business. Any time I have looked into it, it never ended up being worth adding the extra complications for me.

2. You’re being very practical, and should be proud of that decision. You are right that you should not put your parents address as your business address. I suggest getting a mail box account at the UPS store or the like. They give you an actual, physical address not a PO box. Check with the state if you can use the address as the official business address for your company, but at the very least, you can definitely use it as the mailing for your company. I use this for everything from my bank account to my business cards.

3.CORRECT!! Hire the CPA to set up your books and advise you about the things you will need to do to file your returns properly. They can set you up with Quickbooks or at the very least, advise you how to do it yourself.

4. An LLC can own another LLC. File the first one, and if you need to start another, that main one can own the new one. You may not need this though. I have successful started and sold a business with a trade name (DBA) that was owned by my company. I was able to build it up and sell the business by transferring the trade name, trademark and assets to the new owner. Its called “Good Will.” This is getting into legal stuff though, so I suggest you consult an attorney when you are in that situation. For now, file the LLC, and then you can register the trade names and trade marks of the new projects and list your LLC as the owner. If you need to convert these to full-on LLCs you can always do that later.

5. It is important to keep your business expenses and personal expenses separate. You will have a separate checking account and I suggest you get a separate credit card, preferably in the business name to start establishing business credit. I set up my business accounts and personal accounts at the same bank, so I can simply transfer money to my personal account and pay the personal expenses from there, instead of paying personal expenses with the business account. It’s an extra step, but online banking makes it easy. There are different ways you can approach paying yourself and the CPA (See question 3) will set all of that up for you based on what is best for your personal situation. Don’t worry, you will still be able to take money out as you need it (it’s your money!) but how you do it has tax implications, so that is why it is best to get that accountant.

Thanks for asking such great questions. It sounds like you have a great year ahead of you. Good luck with your wedding and your business.

Wonderful blog you have here. I’m getting married in February so I think i’ll come by more often to see what you have to say. Thanks =)

Regarding an LLC, i’ve been holding off on doing this for a couple of reasons that I hope you can offer your input on and help me decide to become an entity sooner.

Reason 1: What state do I file in? I’m in California, but I heard there were some advantages of filing in states like Nevada and Delaware. I am an online business, so I wouldn’t mind doing this if it was beneficial. Would I need a registered Free Agent to handle the documents and forward them to me here in California?

Reason 2: I’m living with my parents (it’s not all that bad), as I my fiance and I decided both to move back to our parent’s homes to save money for our wedding (we’re saving about $10,000 between the two of us doing this). Anyways, i’m reluctant to put my parent’s address as the location of business, since I do business online at the house. What do you recommend I do here?

Reason 3: After filing an LLC, what stuff tax-wise needs to be done. I woul dbe so lost as to how to go about doing all of that. I could hire a cpa or someone in my area to do that for me for a small fee correct?

Reason 4: I was thinking of creating one main company, and then smaller entities beneath that main entity that could be sold in the future. Have you any experience with a Series LLC and do you think this is a good idea in my case? This way, I could keep the main company but sell of the smaller branch.

Lastly, Reason 5: How would I pay myself? Right now I guess you could say I’m a sole proprietor, and I just pull money out when I need it from the pot that’s been growing. I’m really anxious to begin an LLC, but I know the income from the business would go into it’s own bank account, so how would I (and how much would I) be able to pay myself officially.

I’m sorry for all of the questions. Your podcast really sparked some interest for me and I was just curious about what you had to say about my situation. Thanks Ian, all the best.

-Pat

As far as not imagining being sued, I don’t think anyone thinks it will happen until it does. You’d be surprised how many people play the US legal system lottery. You may also be surprised about some of the tax advantages of having a home business, like being able to deduct a portion of your utilities and maintenance expenses. There are also big advantages to being able to establish credit in your business name. And finally, you may want to consider that when your engraving business becomes wildly successful, you will need to establish an entity before you could sell it!

I like to prepare for success. If business takes off and you need to hire help, get space, expand, etc., all of these things are easier if you already have an entity like an LLC. The good news is that if you do choose to stay a sole proprietor, you can always form the entity later.
Thanks for your question, and good luck with your business!

My question is why go through all the trouble of incorporating when I could just file my taxes on Schedule C? I know there are some tax advantages to incorporating but for a small home based business does it make that much difference with time versus money?