Stay Independant or Establish Business Entity?

Replies to This Discussion

Permalink Reply by Kevin Hammond on January 7, 2009 at 9:19pm

Hello Vitaliy,

Welcome to the site!

It sounds like you are currently acting as a sole prop by default and likely using your personal name. I think you should establish an entity and an LLC is best based on what you mentioned. An LLC is easy to set up (you can do it yourself) if you are the single owner. I am assuming that you reside in Ohio. The filing fee is $125 and filed with the Ohio Sec of State.

An LLC is a legally seperate entity from you, although you can still be sued, but at least you have one additional door (along with your liability insurance) to close from litigious customers. Plus the LLC helps with the positive perception factor from potential customers. The LLC also secures your company name in Ohio when you file, so you should think about what you want to call the company. An LLC is taxed the same as a sole prop.

After your LLC goes through (usually 5-10 biz days), then you will want to get your EIN#. Then take your LLC and EIN# info and go to a bank and open up a business checking account. Once set up, run all of your transactions through it, all company income and expenses, that way you get better organized and also sure that you are tracking all the potential expenses for tax purposes. You may also want to consider adding QuickBooks to assist you accounting and record-keeping.

You can go to the Ohio First Stop Business Connection and get all the forms you need here: www.development.ohio.gov/edd/1ststop/onestop/index.cfm

Good luck!

Kevin Hammond

• ▶ Reply

Permalink Reply by Bob Gray on February 5, 2009 at 10:52am

Vitaliy,

If you are trying to operate a small business you should definetly have separate bank accounts one for the business and one for your personal finances. Also; this will help you dealing with all of the tax issues involved in operating a small business. I have found that having a bookkeeper/accountant is also esential in helping me keep all of the financial issues straight. (I can suggest one for you if you would like) This may all seem a bit overwhelming at first but it will help you in the long run. Filling all of the necessary paperwork and getting the licenses to operate as an LLC is something that we all have to do. Remember; Perserverance is a trait all of us as small business owners must have.

Bob
Natioanl High Temperature Products Co.
www.nhtpc.com

• ▶ Reply

Permalink Reply by Vitaliy on February 5, 2009 at 11:07am

Thanks to both of you for your advice.

I filed for an LLC about a week ago and am awaiting the return paperwork.

Here is something that I'm not quite sure about:
I am filed as the single owner of the entity - when I pay myself, do I file taxes as if I was a contractor? So would I need to file a 1099 for myself? I'm still a little confused as to how the taxes pertain to me and how it differentiates from others that I may contract.

Any help in this regard would be appreciated.

Thanks again!

• ▶ Reply

Permalink Reply by Vitaliy on March 13, 2009 at 4:02pm

Any advice on the last post would be very much appreciated.

• ▶ Reply

Permalink Reply by Michael Bowers on March 13, 2009 at 11:09pm

This isn't my expertise but as the member of the LLC you would take Owner's Draws to get paid. At the end of the year your accountant will create a K-1 that you will get to reflect the revenue that you would pay taxes on.

The SBDC puts on a Small Business Tax Workshop beginning in May. It is a full-day, Free, workshop that covers both the federal and State tax requirements. I think the May workshop is at the Delaware Career Center then they are at our Columbus State office.

Best

Mike

Vitaliy Levit said:

Thanks to both of you for your advice.

I filed for an LLC about a week ago and am awaiting the return paperwork.

Here is something that I'm not quite sure about:
I am filed as the single owner of the entity - when I pay myself, do I file taxes as if I was a contractor? So would I need to file a 1099 for myself? I'm still a little confused as to how the taxes pertain to me and how it differentiates from others that I may contract.

Any help in this regard would be appreciated.

Thanks again!

• ▶ Reply

Permalink Reply by Kevin Hammond on April 2, 2009 at 7:43pm

Hi Vitaliy:

Sorry for not getting back quicker to your follow-up question. Following on with Mike's answer, you do pay yourself through owners draws, which basically means you take money out of your business account for personal use as you see fit. There are no rules on this other than when it comes tax time, you need to have enough to pay what you owe.

You don't file a 1099 for yourself nor do you file a K1. K1 is only when you are in a partnership. A 1099 is done by any of your customers for any work you do beyond $600. The customer reports the 1099 to the IRS and in turn sends you a copy for your taxes. But, any income/revenue/sales that you make you report on your Schedule C regardless of whether you got a 1099 or not. So if you did a job for a client and charged $595, they don't send you a 1099, but you still report that as revenue on your tax return.

I would suggest that you attend a Small Business Taxation class. The next one is May 13th at the Delaware Area Career Center @ 4565 Columbus Pike, Delaware 43015. It starts at 9am and runs to 3pm. There is not cost to attend but you must register by calling 740-548-0708 x3222.

Kevin

• ▶ Reply

Permalink Reply by Nancy Stoll on April 28, 2009 at 10:59am

Vitaliy -

As far as the IRS is concerned you are a sole proprietor operating in the State of Ohio as an LLC. All tax concerns both state and federal should be handled following the sole proprietorship requirements and mandates. Therefore, when you pay yourself it should be considered an owner's withdraw. You must file and pay quarterly income tax to the fed & state.

RE: The 1099 concern - This is only a "simple" explanation...You do not issue yourself 1099s. 1099s should be issued to anyone you contract with to do something for you- At the end of the year you report to the fed/state who you sent 1099s to and it is their responsibility to pay taxes on what you've paid them.

Vitaliy - Please check our listings for upcoming workshops. We will be holding an all day IRS Small Business Taxpayer's Workshop on May 13th up in Delaware. Check it out - there is no cost to attend - yes, it's free! It'll prove to be time well spent. A CPA will be your instructor...so you'll be able to soak it all in, get your questions answered, and you'll leave with some great reference resources that hold all the answers once the workshop is over!

Hope this helps - let me know if you have any other questions.

Njs

Vitaliy said:

Any advice on the last post would be very much appreciated.

• ▶ Reply

▶ Reply to Discussion