De-bunking the Myth You Need an LLC

One of the myths I debunked often as a tax preparer is the idea that you need an LLC to have a legit business. It was all too common to advise clients to dissolve them.

Here are 4 things you may not know about it…

1️⃣ Sole Proprietorships are the best place to start.

At the federal level, an LLC & Sole Prop are one & the same. Both put your biz on a Schedule C on your tax return. Both calculate what you will owe in taxes the same way. But Sole Props are simpler. And they do just fine until you get to a point where you’re profiting $60-100k.

2️⃣ LLCs don’t necessarily protect you.

The C stands for Company (not Corporation) & LLCs don’t offer the guaranteed protection of your personal assets people think they do. Only corporations can do that. As a business owner, you should get business insurance. That will protect you if sh*t hits the fan.

3️⃣ LLCs can be more complicated & expensive.

This is especially the case in California – where I live – where we have to pay $800 a year just to have one. We also have to file a separate state return. Not every state is the same – and CA is the most expensive I’ve come across – but this is a good reason not to jump the gun on an LLC.

4️⃣ Let opening an LLC be a rite of passage.

There are many steps to take on your business journey to continue to legitimize your business entity as you grow. I recommend waiting to form an LLC when your budding business really becomes something, as a way to honor its growth into a new stage of maturity when the time feels right. I do not recommend forming an LLC as a way to start a new business venture (in most cases).

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