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Im going to start a small business as a general contractor, Doing small remodels, home repairs and maintenance. I will be the only employee anyone else will be contracted, Whats the best way to go Sole Proprietor or LLC? Does operating as an LLC make doing taxes more difficult? Will my insurance rates be different even though the business structure is the same?

4 Thoughts on If I start my Own company Is an LLC the way to go?
  1. Reply
    Mariela Barbara
    October 27, 2011 at 2:40 am

    LLC is the perferred way to go

  2. Reply
    David
    October 27, 2011 at 3:09 am

    DEFINITELY go LLC. as a sole proprietorship, if your company gets sued, (which is likely considering how much it take to get sued and the nature of the work) then whoever is suing you can come after your personal assets, which means your house, car, etc. You can be reduced to zero. as an LLC, you do pay generally pay more in taxes but it saves you in the long run.

  3. Reply
    Andrew K
    October 27, 2011 at 3:14 am

    I would recommend an LLC. You have limited personal liability and it makes raising money easier if you ever need additional capital. LLCs are pass-through tax vehicles, meaning there is no tax at the entity level. Instead, you will recognize your proportional share of the income, gain, or loss on your individual tax return.

    If you are also the managing member (sounds like you will be) then you may have to pay self-employment tax on your income as well. You may want to speak with a tax professional about this.

    If you do decide to form an LLC, you should be sure that you are not the only member (owner). Sell a 1% interest to your wife or a friend for $ 20 or some reasonably small amount. This way you can avoid your company being treated as a disregarded entity.

    If you’d like to read some more to be sure that an LLC is right for you, please visit http://www.corporationsco.com

    They have some great articles at http://corporationsco.com/resources.php?empty_cart=true#fragment-5

    and a business entity comparison chart at http://corporationsco.com/resources.php?empty_cart=true#fragment-4

    If you decide to form your LLC using CorporationsCo, you get a free consultation with a small business attorney as well.

    Best of luck!

  4. Reply
    Herrmann
    October 27, 2011 at 3:49 am

    As others pointed out, setting up a separate entity (LLC or corporation) does help to limit your liability. HOWEVER, it will NOT protect you in the case of negligence. Even a corporation won’t protect you in that case.

    As for taxes, the IRS does not recognize the LLC form so you have to elect how you report the business’ activity. If it is a single member LLC (only you and no one else as shareholders), you can elect to report the activity on the Schedule C (sole proprietor on 1040). If there are more than one member, you must elect a different form, such as 1065 (partnership) or 1120/1120S (corporation/sub-chapter S corporation).

    As for “anyone else will be contracted”, you need to review the IRS guidelines regarding what constitutes a sub-contractor. The IRS is cracking down on companies (especially construction) that skirt the payroll laws by classifying workers as sub-contractors. The “employee” can file Form SS-8 which asks the IRS to step in and determine their status. Also, the state’s department of industrial accidents will shut you down if you do not include subcontractors on your workers comp insurance or have proof they have their own.

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