For anyone in the process of starting a small, one-person business, is an LLC the best type of entity to set up?
While an LLC is one choice — and a good one — there are several options budding entrepreneurs should consider, according to Deborah Sweeney, CEO of MyCorporation. com.
“I do often recommend entrepreneurs incorporate as limited liability companies (LLCs) because the entity allows personal and professional assets to be separated and protected with liability protection — it’s a great choice for anyone starting a small, one-person business,” Sweeney says. “However, it’s not the only entity that entrepreneurs may want to consider incorporating as.”
Sweeney also suggests considering these options:
–A sole proprietorship. Sweeney says this is another great choice for a one-person business operation. “It’s also a bit more affordable than an LLC,” she says. “If you want to be the boss, you can call the shots with this entity; but you have to remember that a sole proprietor is also responsible for all aspects of the business, good or bad.”
–An S corporation. “This entity begins as an LLC that files for S-corp status with the IRS,” Sweeney explains. “As an S-corp election, the entity tells the federal government it would like to be taxed as a partnership. This allows for the entity to avoid double taxation, which applies to every incorporated business. Instead of paying taxes at a corporate level, S corporations elect to have their profits, losses, deductions and credits ‘pass-through’ the entity level, which saves money across the board.”
–Meeting with someone from your local Small Business Development Center (SBDC) is also a good idea. Partially funded through a partnership with the Small Business Administration (SBA), SBDCs are hosted by leading universities and state economic development agencies and provide aspiring and current small business owners a variety of free business consulting and low-cost training services. My husband and I worked with someone from an SBDC several years ago and saved quite a bit of money based on his recommendations. You can find a list of offices at sba.gov/tools/local-assistance/sbdc.
In addition, if you’re ready to launch a small business, consult with a tax professional — someone who can take all of the nuances of your personal situation into account and help you make the choice that’s best for you.
(Article written by Kathleen Furore)