Should you incorporate your business?
Typically you form an LLC or corporation for your business to shield yourself from personal liability and because there are some tax advantages.
Stefan: I'm Stefan from Brooklyn, New York. I have official, not official photography business and I wanted to know some advice about setting it up as a legal business.
Attorney Tom Olsen: Okay. Stefan, did you happen to be driving around Central Florida or are you listening online?
Stefan: I'm driving around Central Florida visiting a friend and I just so happen to hear it on the radio.
Attorney Tom Olsen: Okay, good for you. Stefan, how long have you been in business?
Stefan: I've been in business for about six years.
Attorney Tom Olsen: Stefan there is definitely some advantage to you becoming an LLC or a corporation. Stefan, I'm recommending it to you. Check in with your accountant or CPA. The reasons are these, number one, you can avoid personal liability so that if by chance you happen to hurt somebody as part of your business, they will be obligated to sue your business, they would not be suing you personally.
Number two, Stefan, there are some tax advantages to being a corporation LLC, Subchapter S registration. Those you can talk over with your accountant or CPA. They're substantial enough, Stefan, that it'd be time for you to make this move and become a corporation LLC and elect to be taxed as a Subchapter S Corporation.
Stefan: Okay, wow. I didn't know that.
Attorney Tom Olsen: Stefan, you are thinking correctly and the next step for you would be your accountant or CPA to talk about those tax savings. Maybe your accountant or CPA could form that corporation for you, maybe you can do it yourself online, or maybe you hire a lawyer but you're on the right track Stefan, keep going. Chrissy, people often ask us, what's the difference between a corporation and an LLC? The answer is not much.
Whether you go with a corporation or an LLC, either one, you then have to tell the IRS how you want to be taxed. Generally, people want to be taxed as a Subchapter S Corporation. Even if you're an LLC, you can elect to be taxed as a Subchapter S Corporation. What that means is that your business, every year, is going to file its own tax return but any profits and losses are passed directly through the corporation or LLC on your personal tax return. Your corporation or LLC, in and of itself, is not going to pay taxes, profits and losses will be passed to your individual tax return.
Attorney Chris Merrill: Again, Tom, am I correct as well that depending upon the business that you're starting, the length of time, and what your goals are, your CPA would direct you to what the best entity is for you? Of course, I know we set up, certainly, we help people set up corporations here in the state of Florida but with regards to the other piece of it, which is the tax advantages and disadvantages based upon the certain entities, that we defer to a CPA.
Attorney Tom Olsen: Yes. Tax advantages can be substantial. Keep going, Stefan, you're on the right track. Hey folks, my name is Tom Olsen. The name of the show is Olsen on Law. You're listening to NewsRadio WFLA.