Small Business Start-up/LLC

Get Legal Help Today

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

Small Business Start-up/LLC

I currently have a sole proprietorship business counseling practice. My wife and I are also starting another business amazon seller. Should we keep the sole proprietorship business separate or should we combine both into an LLC. What would be the best for tax purposes?

Asked on July 29, 2017 under Business Law, Washington

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 7 years ago | Contributor

There is no tax difference--the taxes you pay is a function of net income or loss (receipts less expenses, producing either a taxable gain or tax deductions), not the number of income streams or how many business structures or entitites you have.
You should have *all* business under LLCs--that will protect your personal assets (e.g. house, car, money in the bank) from most (but not all; no protection is perfect) business debts, obligations, etc., apart from those you personally guaranty. For example, say a disgruntled client sues you: if you are a sole proprietorship, you have to pay out of pocket, and if you can't, they could put a lien on your home; but if the business were an LLC, all they could get are the LLC's assets or money, not your own.
There are pros and cons to having one LLC or having a separate one for each business:
One LLC--the pro is you can more readily deploy assets (i.e. use money from one to pay bills of the other) and have more capacity to make use of business expenses as deductions. (To oversimplify: you can't use more deductions than you have income to apply them against. Say you have business 1 which had $100k income, $10k expenses, and start-up business 2, which had $10k income and $20k expenses. If each is a separate LLC, 1 can take $10k of expenses as deductions against its $100k income, but 2 can only take $10k of its expenses against its $10k income and you lose the benefit of $10k of deductions. But if the two business are under one LLC, it's a net of $110k income ad $30k expenses, so you can use all $30k as deductions.)
The con of putting it all under one LLC is that if one of your business ventures has a large debt or obligation, then the assets and income of the other one is at risk, too, since it's all one LLC.
Separate LLCs--it's the opposite of the above: you have less flexibility about using the money or business expenses of one LLC for the other, but each business is protected from the other's liability or debts.


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption