MicrostockGroup
Microstock Photography Forum - General => General Stock Discussion => Topic started by: tab62 on February 22, 2012, 18:10
-
I am curious to know how many of you have an LLC? My accountant recommends that I upgrade my Sole Prop to an LLC. Any thoughts?
Thanks
-
My company operates under an LLC....the company I market my still images under is a registered trade name assigned to the LCC.
-
I have an LLC in the US, and have had for 4 or so years. It files its own tax return and my wife and I as partners get the share of its earnings after all expenses are taken into account. I always thought it would slightly shield me as a person from any claims against the company, but I don't want to really test that part of it!
Steve
-
My accountant recommends that I upgrade my Sole Prop to an LLC. Any thoughts?
What reasons does your accountant give for recommending that you upgrade to LLC?
Of course, as an LLC, your accountancy bills will likely be very much higher so it will certainly benefit him/her. From a business perspective microstock is a relatively simple and comparatively low risk enterprise so why would you need the protection (together with the higher costs) that LLC status provides?
-
My tax/accounting bill is around $300 a year for the tax return, although I do run other business ventures through the same LLC (consulting and some rental income). I'm not sure if an LLC is worthwhile if you simply do photography, although isn't the separation of your personal assets from your business something that is worthwhile?
Steve
-
My accountant recommends that I upgrade my Sole Prop to an LLC. Any thoughts?
What reasons does your accountant give for recommending that you upgrade to LLC?
Of course, as an LLC, your accountancy bills will likely be very much higher so it will certainly benefit him/her. From a business perspective microstock is a relatively simple and comparatively low risk enterprise so why would you need the protection (together with the higher costs) that LLC status provides?
I disagree with this....as a single member LLC, there is no difference in tax forms. You have a Schedule C just as you would a sole proprietorship. The difference is a realization in the limitations of liability.
Here in Colorado, it is $50 to file to become an LLC and to file with the IRS for a separate Federal Employer ID number is free. There are no downsides and if an accountant charges more for a disregarded entity, then your accountant is screwing you.
-
I disagree with this....as a single member LLC, there is no difference in tax forms. You have a Schedule C just as you would a sole proprietorship. The difference is a realization in the limitations of liability.
Here in Colorado, it is $50 to file to become an LLC and to file with the IRS for a separate Federal Employer ID number is free. There are no downsides and if an accountant charges more for a disregarded entity, then your accountant is screwing you.
I've no idea how it works in Colorado but in the UK it is quite different. As a sole proprietor I just give the accountant my numbers for income and expenses and he largely just accepts them and tells me how much tax I need to pay.
Conversely, as an LLC he has a professional responsibility to verify all those numbers and so needs to pore over all the receipts, etc, which obviously takes much more time. Effectively he is the 'auditor' acting in the interest of any creditors and therefore bears significant professional responsibility for the accounts being correct. How can all that not cost more time/money?
-
In the U.S., the difference between a sole proprietorship and a "single member LLC" from an accounting perspective is essentially the Federal Tax Identification Number on Schedule C of Form 1040. There is no other difference from an accounting perspective.
From a liability perspective, in the legal sense of things, there is a pretty significant difference.
-
I disagree with this....as a single member LLC, there is no difference in tax forms. You have a Schedule C just as you would a sole proprietorship. The difference is a realization in the limitations of liability.
Here in Colorado, it is $50 to file to become an LLC and to file with the IRS for a separate Federal Employer ID number is free. There are no downsides and if an accountant charges more for a disregarded entity, then your accountant is screwing you.
I've no idea how it works in Colorado but in the UK it is quite different. As a sole proprietor I just give the accountant my numbers for income and expenses and he largely just accepts them and tells me how much tax I need to pay.
Conversely, as an LLC he has a professional responsibility to verify all those numbers and so needs to pore over all the receipts, etc, which obviously takes much more time. Effectively he is the 'auditor' acting in the interest of any creditors and therefore bears significant professional responsibility for the accounts being correct. How can all that not cost more time/money?
I think the advantage in the UK is that if you pay higher rate tax, you pay a lower rate setting up an LLC and paying yourself a dividend. I think it's also a bit more flexible, you can vary the amount you take out as a dividend and your tax liability each year. I'm not an expert and don't have an LLC but that's the information I read on the HMRC site and various forums.
-
In the U.S., the difference between a sole proprietorship and a "single member LLC" from an accounting perspective is essentially the Federal Tax Identification Number on Schedule C of Form 1040. There is no other difference from an accounting perspective.
From a liability perspective, in the legal sense of things, there is a pretty significant difference.
My accountant told me that the most important factor to keep in mind when considering LLC is limited liability (thus, the name...). I do family and newborn portraiture and he suggested that as I move more towards newborn sessions exclusively I should register as an LLC, just because the nature of the sessions is more sensitive (e.g., a "once in a lifetime" session, similar to weddings, etc). Other than that, no reason to...Stock photogs, or non-newborn/non-wedding photogs have probably a lot less reason to do an LLC
-
I had an LLC but not any longer thankfully. As a sole proprietor the limited liability angle doesn't really work to me because as the only director and sole share holder I was still pretty much on the hook. Plus, I had to file 2 tax returns which doubled up the time and expense of filing.
If a group of photographers got together to form a business and pool resources then an LLC is ideal because it allows them to function as employees taking a paycheck from the company and paying dividends on profit while protecting them from liability but as a sole proprietor it just makes the accountant rich.
-
Interesting. Things must work very differently in the UK. In the U.S., sole proprieters file their taxes on their individual income tax return via Schedule C.
Single Member LLC entities are disregarded for accounting/tax purposes. You file the same form, in the same manner, and just add a separate Federal ID Number on the Schedule C.
Even if you are a sole member, you're still afforded some protections. I had an instance a few years ago where I had a different company. I paid an insurance agent for 3 months worth of liabiilty insurance and was told I would be receiving bills going forward. On the fourth month, I called and asked why I hadn't received a bill. They said I was covered. I ignored it and about 9 months later I dissolved the entity. 3 months after that, I receive a bill for a years worth of liability insurance that they stated I needed to pay for because I had not been paying on the policy. To make a long story short, because they had the Federal ID of the LLC, and because the company had dissolved, I was off the hook even though the insurance agent screwed up.
-
Even after my company went dormant (I stopped using it) the government came after me to file tax returns. All I had to do was get the proper form and fill in zeros everywhere and check a box that said the corporation was non-active. Complete waste of time, paper, you name it but that makes them happy.
-
In the US, a lot of the advantages that used to be available as a corporation no longer apply, health care insurance deductions being a big one. Also, the limits on contributions to a pension fund are more equal now. Treatment of asset depreciation is more equal as well. The issue of legal protection is more about protecting personal assets from business loss than about protecting you from a personal injury lawsuit, but it is another barrier at least. The biggest consideration at this point is that, as a sole proprietor, depending on your income to cost ratios, you can become a big target very quickly as your income reaches certain levels. If you are, say, writing off half your gross income on a schedule c, you can expect to be audited. This happened to me repeatedly, year after year, and even though all my audits came back as a "no change", I still had to pay the accountant to be there. Sometimes these audits took 3 or 4 days to complete. Finally, my new accountant pointed out that, as a corporation, I would be almost invisible. Even a corner candy store has more gross revenue, which is how they structure the audits. So being off the radar has been a good move for me. I'm a C corp, I don't know if there is much difference in a pass through LLC corp, but it is worth looking into if you get above a certain level of income. The downside is higher accounting costs, state fees and double taxation on profits if you hold them in the company. This is why it's good to be in the tax accounting business. But as a wise mentor said to me many years ago, "don't complain about taxes- it means you're making money."
-
Interesting stories. Mine is similar to Digitalexpress. I was incorporated for two years (S-corp) and it was two solid years of nightmares. Within a month of incorporating, I got a notice from the State of Florida that they were auditing all my receipts for the last several years (I think it was 3) and going to charge me Use Tax for anything I bought over the internet and didn't pay sales tax on. That ran me a couple thousand $.
Then there are the hassles of having to pay monthly payroll taxes, and pay state use taxes each quarter.
Not to mention that I had one incompetent accountant after another. The first filled out my W-2 wrong, and never transmitted it to the IRS. The second accountant caught the first one's mistake, and *said* he transmitted it. So instead of my 9k refund, I get a notice that there are irregularities with my tax form. Took six months of waiting before they finally got around to telling me that they never got a W-2 on me. I faxed them the W-2 I had. Unfortunately, it was the inaccurate one.
That was enough for me. I threw in the towel in March of last year. Guess what, this corporation is the gift that keeps on taking. Last week I get a notice that on my 2010 taxes, the W-2 I sent to the IRS and the W-3 that the Social Security administration have are two different numbers. So I have to pay yet another accountant (a competent one I used before I incorporated) to sort out this mess.
Admittedly, a really good accountant could have saved me a lot of aggravation, but the bottom line for me is that the paperwork and man-hours involved in dealing with the corporation were not worth it. I definitely would not open another one. As a one-person operation, Sole Proprietor suits me just fine.
Oh, and unlike Jbarber above, my expenses are only around 15% of my income, so I think I should be under the radar.
-
Lisa-
There's nothing quite like a bad accountant. Maybe you should hire a second accountant to check over what the first one does. ;D. Years ago I got a refund out of the blue for thousands of dollars. I called my accountant and he said - "that's great! ". I said yeah, but I'm paying you to not get surprises or overpay in the first place. He didn't see it that way, and it was on to the next guy.
-
Lisa-
There's nothing quite like a bad accountant. Maybe you should hire a second accountant to check over what the first one does. ;D. Years ago I got a refund out of the blue for thousands of dollars. I called my accountant and he said - "that's great! ". I said yeah, but I'm paying you to not get surprises or overpay in the first place. He didn't see it that way, and it was on to the next guy.
Yeah, there seem to be quite a lot of bad accountants out there. I never realized.
Personally, I would look at that check as found money, and enjoy it. And get a new accountant (as you did) ;)
-
Lisa, my day job is dealing with Sales and Use (and other transaction related taxes). You would have owed the use tax whether you were incorporated or not...it doesn't matter if you're an individual, an S-Corp, a C-Corp, or a sole proprietorship. I'm sure you got baptism by fire with that and it's one thing a lot of small businesses get nailed. on. I've represented the companies I've worked for on 4 Florida audits over the years (as well as many other state and local tax audits). Unfortunately, in that situation, it doesn't matter what form of business you are in.
-
Lisa, my day job is dealing with Sales and Use (and other transaction related taxes). You would have owed the use tax whether you were incorporated or not...it doesn't matter if you're an individual, an S-Corp, a C-Corp, or a sole proprietorship. I'm sure you got baptism by fire with that and it's one thing a lot of small businesses get nailed. on. I've represented the companies I've worked for on 4 Florida audits over the years (as well as many other state and local tax audits). Unfortunately, in that situation, it doesn't matter what form of business you are in.
I am sure you are right, but it is no coincidence that the audit came within two weeks of my becoming incorporated. I was blissfully ignorant of the Use Tax and they were unaware of my existence before that.
-
I recently got an LLC. My thinking was that I might someday want to sell my business and that it would be easier to do so if my business had a name other than my own.
Also, as an illustrator and designer, I have been accumulating more and more licenses. Soon I will have thousands of dollars in font licenses. I have also been buying licenses for microstock photos. And of course I have thousands of dollars invested in 3D and 2D software licenses.
These licenses are all assets. But it seems that many of the licenses cannot be sold or transferred to another person. However, if my corporation bought the licenses, then whoever buys the corporation should get the licenses. Making my business worth more if I ever do sell it.
Does anyone have any thoughts on this?
-
I recently got an LLC. My thinking was that I might someday want to sell my business and that it would be easier to do so if my business had a name other than my own.
Also, as an illustrator and designer, I have been accumulating more and more licenses. Soon I will have thousands of dollars in font licenses. I have also been buying licenses for microstock photos. And of course I have thousands of dollars invested in 3D and 2D software licenses.
These licenses are all assets. But it seems that many of the licenses cannot be sold or transferred to another person. However, if my corporation bought the licenses, then whoever buys the corporation should get the licenses. Making my business worth more if I ever do sell it.
Does anyone have any thoughts on this?
Honestly...and this is nothing against you....but my thoughts are you make a great argument for folks to license images on a rights managed basis as opposed to royalty free LOL
But good for you in thinking about your business in this fashion...it makes sense and it's sustainable on your end from this perspective.
-
I recently got an LLC. My thinking was that I might someday want to sell my business and that it would be easier to do so if my business had a name other than my own.
Also, as an illustrator and designer, I have been accumulating more and more licenses. Soon I will have thousands of dollars in font licenses. I have also been buying licenses for microstock photos. And of course I have thousands of dollars invested in 3D and 2D software licenses.
These licenses are all assets. But it seems that many of the licenses cannot be sold or transferred to another person. However, if my corporation bought the licenses, then whoever buys the corporation should get the licenses. Making my business worth more if I ever do sell it.
I don't really understand your thinking. Your 'business' is essentially your portfolio isn't it? There's no established market for microstock portfolios as the returns into the future are so unpredictable. Even if you did want to sell your portfolio then it would probably be easier to do so as a privately-owned entity rather than complicating matters by wrapping it in an LLC. Would you prefer to buy an appreciating asset, such as a classic car or a work of art, as an LLC?
I'm totally lost on your idea to sell the 'licenses' you have accumulated as 'assets' too. Even if you had accumulated 10K of them then how much would the restricted use of 10K random images be worth to anyone? Why wouldn't they just buy new legally-sound licenses, for the relatively few actual images they are likely to use, from the millions available on the agencies?
-
All you need, is a crooked accountant, a bent lawyer and a forgiving priest and you should be earning a fortune.
-
Whether you have and LLC or Sub-S or File a Schedule-C, you can be caught up in the Information Sharing between the IRS andd each State's Revenue Departments. In other words when Lisa filed as a Sub-S, The State of Florida received information/statistics on the various Individuals and businesses that presented possible audit potential. In Lisa's case, she apparently had high income from sales and perhaps a significant upswing in Depreciation Expense. The Depreciation Expense icreasing significantly indicates to the State that significant purchases were made. That is when the Sales/Use tax deduction becomes interesting. If Depreciation Expense goes up sharply and the Use Tax deduction was relatively the same or nonexistant, then Florida would select that particular return for audit.
All Federal Agents and State Auditors have to conduct a pre-audit as I pointed out above to determine the potential for an assessment. Jusr remember - the Fed communicates with the State and vice versa. It does get more attention if you have a Corporation of any type as compared to filing as an individdual. By the way - Individuals have to be aware of the test to determine if you are a business or a hobby! Try not to show more than one loss out of every three years and you will lessen your chances of an examination by the Feds. Lisa has no problem there! ;D
God Bless and have a great day!
-
I am curious to know how many of you have an LLC? My accountant recommends that I upgrade my Sole Prop to an LLC. Any thoughts?
Thanks
As of Feb 1 I've been a Sole Prop for twenty years. According to my accountant, because it's just me, I have all the advantages of being incorporated and none of disadvantages.
-
By the way - Individuals have to be aware of the test to determine if you are a business or a hobby!
Can anyone elaborate more on this? Is there a URL that you can put in numbers to determine if I am a hobby or business? Is there a ratio of gross sales to expenses that determines a hobby or business?
-
By the way - Individuals have to be aware of the test to determine if you are a business or a hobby!
Can anyone elaborate more on this? Is there a URL that you can put in numbers to determine if I am a hobby or business? Is there a ratio of gross sales to expenses that determines a hobby or business?
http://www.irs.gov/newsroom/article/0,,id=169490,00.html (http://www.irs.gov/newsroom/article/0,,id=169490,00.html)
Last I heard it was a 3 out of 5 year rule - it doesn't necessarily mean that you automatically get audited but it is a pretty big red flag.
-
I think the only difference for me is that I have to buy the more expensive version of TurboTax to deal with the LLC. Same time spent doing taxes overall.
-
Whether you have and LLC or Sub-S or File a Schedule-C, you can be caught up in the Information Sharing between the IRS andd each State's Revenue Departments. In other words when Lisa filed as a Sub-S, The State of Florida received information/statistics on the various Individuals and businesses that presented possible audit potential. In Lisa's case, she apparently had high income from sales and perhaps a significant upswing in Depreciation Expense. The Depreciation Expense icreasing significantly indicates to the State that significant purchases were made. That is when the Sales/Use tax deduction becomes interesting. If Depreciation Expense goes up sharply and the Use Tax deduction was relatively the same or nonexistant, then Florida would select that particular return for audit.
All Federal Agents and State Auditors have to conduct a pre-audit as I pointed out above to determine the potential for an assessment. Jusr remember - the Fed communicates with the State and vice versa. It does get more attention if you have a Corporation of any type as compared to filing as an individdual. By the way - Individuals have to be aware of the test to determine if you are a business or a hobby! Try not to show more than one loss out of every three years and you will lessen your chances of an examination by the Feds. Lisa has no problem there! ;D
God Bless and have a great day!
Really interesting info! I had suspected that the state was notified in some way. The timing was just too coincidental. Thanks for confirming my guess. :)
As of Feb 1 I've been a Sole Prop for twenty years. According to my accountant, because it's just me, I have all the advantages of being incorporated and none of disadvantages.
Very good to hear this. My original accountant told me this too, but I listened to another one who told me how many thousands I would save by being incorporated. The huge savings never materialized, and the accountant who told me all that turned out to be incompetent, as did the one after her. Now I am back with the original accountant, and happy to have him file my final corporate tax return.
-
For what it's worth, the Feds and the State share information....but states also have "multi state compacts" as well that share information amongst themselves. Cities do this as well.
Say you have two primary business locations - one in Georgia, and one in Florida. They talk to each other and share information.
Home Rule cities in Colorado do this as well as the various Parishes in Louisiana.
-
It sounds like Sole Prop suits most people just fine for microstock. But what about you folks who are doing client work as well? Do you prefer a Sole Prop or LLC for that sort of work?
I'm doing more client work lately and thinking that maybe I should file for an LLC. A bunch of my clients had to issue 1099s to me for 2011, and it was a bit odd to repeatedly be telling people that I'm a sole proprietor and the needed to use my SSN on the 1099. I'd rather be giving out a an ID number than my personal SSN.