Separate Yourself From Your Business
Here's How to Create an LLC with Minimal Cost (Systems Post #3)
You are not your business. Repeat with me: “I am not the business I created/creating.” It is like a paper you wrote, it is your work but it is not the whole you. It only belongs to you. In this post, I will discuss the advantages of separating yourself from your business. This is the third post in the Establishing Systems Series. The first two are about:
It’s All About Money
Any business sells something to earn. If you are still employed and earn money outside your regular paycheck, there is a money trail and you probably will be taxed for it. Let me tell you my experience.
When I was still teaching, I was awarded a training contract outside my school. They gave me a check in my name. During tax time, I got a Form 1099 reporting that income which was also sent to IRS. Imagine my surprise when a big chunk of my payment was taxed. My friend was also surprised that her tutoring gig in the same school took a big percentage (bigger than the usual paycheck tax deduction). Later, I got a contract in almost the same amount. This time, the check was paid in the name of my Single Member LLC (Limited Liability Company). I was taxed less when I was paid through my business.
DISCLAIMER: I am not a tax specialist. I am just sharing my personal experiences for educational purposes. It is recommended that you ask a tax professional about your own circumstances.
A Single-Member LLC is a pass-through entity. That means, it does not have to file a corporate tax. You file its taxes together with your regular Federal and/or State Income Taxes. Read more about it in the Tax Foundation website. In the above scenario, I was taxed less because I was able to deduct business expenses using an add-on form for LLC owners called Schedule C. Next post, I will write about how I systemize collecting business income and expenses to easily fill Schedule C, otherwise knows as Profit or Loss from Business Form.
Other Benefits and How to Form an LLC
you can open a business bank account and separate your personal and business finances
you have more credibility as a business
there are limited liabilities but you have to read more about that. I recommend Nolo’s Guide to Single Member LLC
Nolo’s book included all the forms you need to register your own LLC. I only followed their book and then looked for the official site of the state where I am located. If you are in the DC Metro area, here are the official sites:
District of Columbia - DC Department of Licensing and Consumer Protection
Virginia - VA State Corporation Commission
Maryland - MD Business Express
If the business address you will use is elsewhere, just find the *.gov site of your state and look for where to file an LLC.
Names and Other Details
What about websites, branding and other details? Well, just start naming your business. You have to see if your state already have a similar one. If not, it will probably be okay. Remember, your business name can be different from your brands. For example, Tide is a laundry brand but the company which owns it is P&G. If you have no idea what to call your business, go back to what we did at this post to figure out where you are good at to jumpstart your business. Then use a related phrase. Just start.