Registering small business?

[flyweightnate]

My naivety is showing on this one.

I think I'm on the cusp of a design freeze on the Phantom frame I've been working on. Economies of scale being what they are, it'll involve thousands of dollars in outlays, and hopefully some greater number of thousands in return. Fair chance I get past the $600 minimum reportable income. So... is it worth making an LLC?

I hope to continue to make and sell little "widgets" like sears and triggers and feedneck adapters, which were never enough money to mess with my taxes. But if I do one or two big projects a year, I know it's gonna be a lot going out, and a lot coming in.

Who has experience with this? Is an LLC the way to go, do I go S corp, are trademarks important or not worth the time yet (and can i set them up later)? Is there a magic number for receivables or profit where one or the other strategy makes sense?

I have a single rental house and I haven't done anything clever there, just write off expenses on my taxes... just wondering if I need to change the game here, especially as 8.25% tax on $5-10k in expenses starts to have a real impact.

[superman]

It really just depends on how much your talking and where you are going with it. If it is hobby level even well above the $600 you can still file on your personal taxes.
Personally I created an LLC to create separation from my personal finances, both for banking, purchasing, sales, and potential financing if needed. I did this mainly in the event that something should happen that it would not effect my personal finances for both my wife and daughter's sake. Wife is still a member of the llc though.

[coyote]

Spend some $ and talk to an accountant.

This stuff varies enough from state to state I can give you advice that's good for California but irrelevant in Texas

[flyweightnate]

That's a good point... no state income tax in TX but I have no idea if that's just personal.

[BretG]

Yes an LLC is a limited liability company with separate income and expenses, so you own the company, but the company owns assets, pays taxes, and provides income. If the business loses in court, you only lose listed assets.
So why go to all the trouble? It becomes a real business and protects you as you deal with customers and the government. It is the right thing to do to be a legitimate provider of goods and services.

[Axel]

Let's say some dingbat builds a Phantom with your frame and then shoots himself in the eye with it because he's an idiot. Do you want him to sue you personally, or your LLC?

[flyweightnate]

Yeah, that was one of my first thoughts on the issue.

[Painthappy]

LLC is the way to go. I have one for my rentals. Gives an air of professionalism for the tenants, you can open a business account, get a business credit card etc.

LLC is simple to start. You don't have to have a tax id if you don't want to open an account for it, but I did one mine. So then you go to the govt (online irs) and get a tax id for your LLC. Then you can bring all of that to the bank and get a bank account in your businesses name.

LLC's just flow to your personals, so it's just income in, minus exprenses, and that's the reported income. Done.

Do you need to do it? Probably not. But as I said, i've had my tenants think I was part of some big corporation or something. Crazy what a business name will do for you. Plus I'm trying to build up my business credit and maybe one day be able to purchase a house in the LLC's name. Who knows?

[Grendel]

If you are the only one in your business there really are two separate vehicles you can use LLC (Limited Liability Corp.) and Sole Proprietorship. There are pros and cons to both and a LLC does not provide complete separation of Corporate and Private assets and liability, as many believe, but it is a barrier that has to be worked through if sued. coyote has it right contact an accountant or two and at least get some opinions from a financial side what will work best for you, your business and your state. You can set up an LLC fairly easily if that is the route you find works for you.

[Lane]

As mentioned previously getting a separation between your personal and business finances with an LLC or Sole Proprietorship is likely going to be the best benefit should something go wrong and there's legal trouble. Wouldn't be so worried about it if we were selling simple things like detents or feed gates but once you get into parts like triggers, safeties, pressure bearing pieces, etc. it can start to become a real concern. Fortunately starting an LLC or SP is fairly straight forward. In addition by having your formal business name in your email, communications, etc. you'll tend to get better and quicker responses from vendors you may be working with.

[SPSheep]

I'll just add another vote for LLC. Simple to create and gives you liability protection. You can also do pass through taxation with one (the LLC doesn't pay taxes as an entity, you pay on your own return), but watch out for self employment taxes in your state. Some states (looking at you, California) have high self employment rates. But (as others mentioned) definitely better then being held personally liable if some yahoo tries to go after you in court.