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I am looking at forming an LLC for my photography business using LegalZoom.com and wondering if anyone has ideas or suggestions regarding this move. Is it a good strategy in terms of being able to write off equipment and expenses or is it not worth the trouble? Any ideas or advice is appreciated.
Joel, is buisness that good now :).
You can write off business equipment and expenses as a sole proprietor. Just use a schedule C and name your business. The purpose of a LLC is just as the name implies. “Limited Liability”, it affords you some liability protection similar to incorporating. In some states the tax laws may vary on how you have to file. It is possible that you may end up with unnecessary tax paper work. I think you need to research that part through your state.
I've done this for other businesses and am a lawyer by training. While LLC rules vary by state, it is easier and often "better" to form a small business as an LLC rather than a corporation or s corporation. A key consideration is whether you will be the only employee of the business. If so, LLC is the answer. You can form what's called a single member LLC and all business income "passes through" to your personal tax return on a schedule C (you will need to elect this option at formation). Clean and easy. As a single member LLC, you don't need to create an operating agreement (which is pretty much necessary for a multi-member LLC and is a pain to draft; read: lawyer fees etc.).
Once you form an LLC, generally all you need to do is file an annual report form with the state (which is simple; it's just a revenue generator for the state) and do your bookkeeping properly.
But remember: you can write off photography expenses only to the extent you have income from photography work. And if you have income, you'll have to check IRS rules about depreciation of capital equipment, which is the lion's share of your likely expenses. These rules will limit how much of any expense you can deduct in any one year. Finally, IRS rules get kind of sticky with "mixed use" expenses (ie, you use the equipment for both personal and business uses). These are questions for an accountant, but they're KEY to determining whether this makes sense or not.
Generally I tell people to stay away from legal document websites, but a single member LLC is very simple. What's the cost?
I'd talk to an accountant before moving forward. Let me know if you have more questions!
Brian
Indeed this is the easiest option, and photography isn't really a business that's prone to lawsuits. It's really a question of risk tolerance. But this is the good ole litigious USA... If you're serious about the business, I'd take advantage of the legal protections of an LLC.Quote:
Originally Posted by HDNitehawk
I am curious what the cost is for an LLC?
I have a state of Texas tax number. I write off business equipment and expenses each year. I also have to collect state sales tax and pay the state each year. Also have to claim my equipement and pay property tax on it. Being a small part time business the property tax is not much of a burden just the paperwork.
For an LLC there are entity formation costs and annual costs (not considering tax matters). Entity formation on your own without a legal form site probably runs around $100 depending on the state. Annual reporting fees are usually around $25 or so. That's it for LLC costs. Do a google search for you state's department of corporations. The names vary greatly but it's usually a division of the secretary of state's office. Here's Texas': http://www.sos.state.tx.us/corp/index.shtmlQuote:
Originally Posted by clemmb
Thanks for the quick info....the total cost through LegalZoom for a basic package is around $300.00
It would be a single member LLC taxed as an S corporation. My accountant agrees that it would be a tax advantage in that equipment can be depreciated over time.
I have not made much money so far but I do have some income from photography now and will probably have some ongoing income although not a great amount. On the other hand the tax write off could be substantial considering everything I have accumulated in that last few years.
It looks like it could be well worth the effort even though there will be ongoing expenses and paperwork to keep up with.
$300 isn't bad. I'd go for it. The ongoing cost and burden of having an LLC is not too significant. The big issue is taxation, and you seem to have that covered.
Before LLC's became popular, I formed a corporation with the state. I did all the research myself and bought the forms at someplace like Office Depot. I think you can do this very easily yourself, less than $300 if you really worked at it. The continual paper work for a corporation was kind of a pain.
At present I have a consulting business and I operate as a sole proprietor. I try to avoid additional paper work if I can.
I think before you do you should consider the extra paper work considerations. The LLC will protect you but only to a certain extent, will it be worth it. I know you have a fine collection of bird photos, if this is the sole income generator I can't see where an LLC would afford you much protection or be needed. However if you are shooting weddings, or taking on contract work it might be a wise idea. I would weigh your income and exposure to the extra paper work to see if it is worth it for you.
Good advice, exactly what I am doing....trying to weigh the alternatives.Quote:
Originally Posted by HDNitehawk
I am not doing weddings (yet:rolleyes:) but there are some portrait and sporting event opportunities for me and I am open minded to all sorts of possibilities so I want to be prepared.
I am leaning toward the LLC and will decide soon as I have a contract to produce 20-30 large prints in the next 2 months.
Joel, selling the prints I don't see a need to hurry out and make an LLC. Keep in mind at any time you can change from sole proprietor to LLC. If you start taking on clients do it.
I think what would be more important is good liability insurance. I know general liability would be a necessary in case you accidentally hurt some one, I am not sure what other types of insurance a photographer might carry. Here is an instance, if you have been watching USA olympic basketball a player on an opposing team ran in to a photog and hit his head on his big white lens a game or two ago. Imagine if you were at the local high school game and the top prospect in the country ran off the court and was knocked out by your lens. Big lawsuit, an LLC might help you but probably will not in this situation.
I would agree that forming an LLC just for liability protection is probably not critical at this stage. The most significant advantage is a deduction for equipment depreciation on my personal income taxes. In my particular situation I believe that it is worth the effort. I already have an accountant who takes care of my main business and my personal taxes. He feels that he can do the photography LLC with minimal additional effort.
At some point I may need insurance as well but not yet. I think it would be definitely be needed if I brought clients to my home or a studio. Also if I were to get into offering classes or workshops but that isn't in the immediate future. I suspect insurance costs is one reason why workshops are so expensive.
Amen brother!!!!!!Quote:
Originally Posted by jrw
Joel,
I try to avoid talking taxes but, i see no benefit here for you in this regard. To take the allowable deductions as a business you could simply file schedule C. If your business can be considered a true business for profit your gains will be taxable and on years with a loss it will lower your tax burden.
However the IRS has rules on what it conciders a hobby and a business. One of the rules for it being a for profit business is that you show a profit at least two of five years. This could be the toughest to meet. But there are many rules they have for a hobby.
But the difference in a hobby and a business for profit as it matters to us is that a hobby can only write off deductions to the point you had income, where a business for profit can have a loss that offsets against your taxable income. There is a spot on the tax forms to enter hobby expenses and income.
Rick
Not necessarily true. An individual/sole proprietorship cannot file taxes as a corporation. Depending on your business, there might be significant advantages to being taxed like a corporation (dividend distributions, depreciation, etc.). If you want that tax treatment, there are only two ways: incorporate or create an LLC and elect to be taxed as a corporation.Quote:
Originally Posted by HDNitehawk
Sure you can choose that option. As an individual sole owner I am not sure why you would want to be double taxed like a corporation. But you could elect that option if it fit your situation. One of the reasons we see so many LLC's now, an LLC affords you less protection than a corporation but you do not have to be taxed as a corporation. Most of the people I know that changed from an INC to an LLC was just for that reason.Quote:
Originally Posted by thekingb
Some people's businesses have an income/expense profile that makes it relatively easy to zero out income based on high expenses. I suspect that in a photography business, the high capital costs depreciated over time could wipe out any income, leaving you with actual income (money in the pocket) from the business but no paper income because of the offsetting expenses. I believe the tax rules for corporations give you more flexibility here than with sole proprietorships. But that's for the accountants. And it seems like Joel's accountant sees a benefit to corporate tax treatment rather than sole proprietorship.Quote:
Originally Posted by HDNitehawk
But I still think all of this is beside the point. Forming and maintaining a single member LLC is cheap and easy. The LLC requirements for my old consulting business took me about 10 minutes and $25 a year. No reason not to do it IMO.
You can deprecate capital expense with both types and it will definitely keep money in the pocket. I am not aware of how there might be a benefit form one to the other, and from my time owning a corporation I don't think it was much diffrent. That was 12 years ago though and times change.Quote:
Originally Posted by thekingb
It will be a benefit to the accountants taxes, it makes more work for him and he makes more money because he spends more time on your taxes. As with doctors, lawyers, accountants and other professionals they are in the business to make money. They have to be managed or you end up with unnecessary expenses. The more you know yourself the better off you are.Quote:
Originally Posted by thekingb
It does make it easier for the accountant to justify the expense as a legitimate buisness rather than a hobby, if it appears the buisness is actually a buisness. If you go to the trouble to structure a business it will appear to actually be a business. Proving that the business is a for profit business in this situation is the biggest hurdle to overcome.
I agree, it isn't a big deal to do.Quote:
Originally Posted by thekingb