Hi all, I'm in the middle of researching starting an at-home eBay business. Since it will just be me, which structure should I choose? I'm reading up on both now, but not very good with all the tax jargon. Also, which one would be cheaper to set up? Thanks!
They are both very similar. S-corp will offer your personal assets protection. LLC can be used where you don't need the extra protection. I would go s-corp for eBay but it's up to you =]. Matt
Hi Butterfli, That entirely depends upon the details of your immediate needs as well as with your future needs. If you won't be hiring employees, another good option is to set up a sole proprietorship and - if truly needed - purchase liability insurance. That way you can easily pay yourself, save money on the structure setup, and keep it simple. I think that you are approaching it the right way by reading up on it yourself. You should also talk to a tax attorney or a CPA who knows about the differences between entity structures. ~Newbie Shield~
You really don't need either one, unless you just want to sound more professional. Like Newbie Shield said...a sole proprietorship is all you need & it doesn't cost anything to set up & is very simple. Best of luck to you!
I've got some of both for my various businesses. Even though I have them, though, I'm not smart enough to recommend one over the other. Probably should go talk with an accountant or an attorney for a half hour.
countrygirl: ...a sole proprietorship...it doesn't cost anything to set up... It only costs around $30 or $40 to set up the entity plus an additional $45 or so to post it in a qualified biz classified section in order to give local residents a chance to challenge the use of a specific entity name (in case it's already being used or has already been reserved). Even so, it's still cheaper to set up and to maintain than either an LLC or a Corporation. ~Newbie Shield~
This is true Newbie Shield, but I was referring to just using your personal name, filing schedule C on your tax return, and not using an entity name. This way it costs nothing. I really don't see the need to have a entity name for selling on Ebay. Just my opinion.
My advice would be not to rely on forums for legal advice. However, just to throw in my two cents...I like the way you can easily set up an LLC. I have had all of the above at one time or another, and the LLC has advantages over all the others in my opinion. Also, some of the information in this thread is inaccurate, or downright wrong as far as the advantages and disadvantages for the various entities mentioned.
Whatever you do, dump the sole proprietor ideal. In really it you are just doing business in your name with a pseudo name. LLC , or limited partnerships are the idea way to go for small home businesses, and even larger massive companies are operating under LLC's. You can get all the protection you need without the corporation hassles with an LLC. There are many other structure related things for assets protection that wouldn't fit this thread or forum but I would encourage all to operate under an LLC and not their personal name or similar. Get your business tax id, your business bank account, and be about doing your business.
One difference could be in the tax treatment of LLCs vs. S corps. Every dime earned in most LLCs is subject to self-employment tax--15 percent off the top. S corps can reduce that by separating profit between "reasonable salary" (which ARE subject to self employment tax) and "S corporation distributions" (which are NOT subject to self employment tax). Possibly the best deal is an LLC with at least one owner who is not in the business. In many cases, you can avoid a vast majority of self-employment tax if your accountant is comfortable relying on proposed regulations.
It is also a BIG misconception that your personal assets are proctected under an S corp. Most S corps are small businesses that require personal gurantees on any loans or possible litigation that may be made against the corporation (believe me, I found out the hard way). This is called piercing the corporate veil. The so called tax advantages are also may overhyped for an S corp. It is really only very large companies that are C corps that truly have there personal assets protected because loans made to these companies are in the business name and do not require personal gurantees. I would go with an LLC all the way if you are thinking of incorporating. For very simple LLC's you could always use legal zoom or some other legal website to get the correct paperwork filed. Good Luck!
ShaneC, you absolutely do have to follow the corporate formalities necessary to keep the veil intact for either a corporation (S or C) or an LLC. The biggest one is to keep the entity's money separate from your personal money until it is paid as a wage or distribution. You are also correct that small business owners typically have to personally guarantee bank loans and leases. However, I would much rather have broad protection against creditors with a couple of exceptions than have no protection at all. LLCs and corporations both accomplish that objective.
I would set up a New Mexico or a Wyoming corp for maximum protection. Ask them which would be better for you.
You need to talk to your CPA in your State. But don't put the cart before the horse. You don't need anything until you start earning a certain amount (your CPA should be able to guide you on that) - otherwise it's just cost prohibitive. If you're super, super concerned about liability, then consider an inexpensive Umbrella policy - those can be purchased for $200-300.
It really depends on the state that you are in. In TX it is $300. And, you have to keep up with the QTRLY and annual filings to keep the company in good standing.. I would say go with an LLC. The IRS has been targeting many S-Corps because they claim that people are avoiding paying the taxes that they owe. Best of luck to you!
Hi Butterfli Very smart decision to take this huge step. I recommend ElevationTax. The great thing about this firm is that they focus on online marketing and home-based businesses. They have got clients in every single state in the US, and roughly 90% of them work from home. They also help in easy online incorporation or LLC creation. Ask for Jeff, let him know I mentioned him. Best, Victor
I would recommend speaking with a business attorney to help you with this. Yes, it costs a few hundred dollars more, but is worth it for the peace of mind knowing you had a pro put it together for you. I would caution you against sole-proprietorship unless you get good insurance ("Errors and Omissions" I believe). I have a single-member LLC and that works fine for me.
