Solopreneurs and LLCs: Why They Make a Great Match
Just because solopreneurs are one-person businesses doesn’t mean they don’t share some of the same challenges and risks that owners of larger businesses do. If you’re a solopreneur and want to protect your personal assets and have tax treatment flexibility, consider forming an LLC.
The LLC business structure offers solo professionals several advantages, including:
Reduced personal legal liability via separation of business and personal assets. Running a business as a sole proprietor offers simplicity, but it also opens your personal property (such as your home, car, retirement and savings accounts, etc.) to risk if someone sues your business, or your company hits financial difficulties. By forming an LLC, you gain a degree of personal liability protection while continuing to operate with minimal compliance complexity.
Flexibility in being taxed like a sole proprietor or an S Corporation. As “disregarded entities,” most single-member LLCs are taxed like sole proprietorships. Business profits and losses flowing through to their personal tax returns (filed via Schedule C of your Form 1040). This avoids the double taxation that corporations face when business profits are taxed at the corporate level and again at the personal level on shareholder’s tax returns when they get dividends.
But after consulting with a tax advisor, you might find flow-through taxation is putting too much of a personal tax burden on you. Fortunately, as an LLC, you have the option of filing for S Corporation election. With S Corp tax treatment, self-employment taxes (Social Security and Medicare taxes) are only applied to your wages and salaries rather than on all your business’s profits.
Uncomplicated compliance requirements. If you don’t want the hassle of strict, ongoing requirements to keep your company in good standing with the state in which you’re registered, you’ll want to consider forming an LLC.
With reasonable filing fees and less paperwork, an LLC can be a good match for solopreneurs who want liability protection without too many corporate formalities. Requirements vary by state, so make sure you carefully review your state’s rules.
Six basic steps to form an LLC
Does forming an LLC sound like a viable alternative for you? Here are the typical steps you’ll need to take to register your LLC with your state:
- Choose the business name for your LLC. Do a corporate name search to make sure it’s available.
- File Articles of Organization. You can usually find what you need to submit on your state’s Secretary of State website.
- Create your operating agreement. Some states require this document; it shares the internal ground rules for how you’ll operate your business. You can find templates online to help you craft your operating agreement.
- Apply for a federal EIN (Employer Identification Number). Even if you already have one for your sole proprietorship, you will need to request a new one as an LLC.
- Open a business bank account. Most states require that you set up an entirely new bank account for your LLC, even if you had a business bank account as a sole proprietor.
- Check on your business license and permit obligations. Some states and cities will require you to re-apply for permits and licenses to legally conduct business under your LLC.
Solopreneurs and LLCs: A great match
Forming an LLC is a relatively simple process that can give you peace of mind through protecting your personal assets and providing tax flexibility to help you maximize profitability. Will an LLC be a great match for you? It very well might be! Before moving forward, however, I encourage you to talk with trusted legal and tax professionals to make sure you choose the option that right for your situation.
Office Evolution Columbus
At Office Evolution Columbus, we understand the unique challenges of being a solopreneur, and we have designed our services with the modern day, flexible, entrepreneur in mind. Our Virtual Office or Entry Level Services ranges from a private mailbox, to meeting space, to phone answering service providing the support you need in your entrepreneurial journey.
We also offer the ideal combination of a Coworking Community and Private Offices. We serve the Columbus metropolitan area with 3 locations, so when you start looking at office space near me or a conference room near me or a meeting space near me, we are close to Powell, Dublin, Hilliard, Grove City, Worthington, New Albany, Westerville, Bexley, Blacklick, Clintonville, Upper Arlington or Reynoldsburg, choosing Office Evolution Columbus in Dublin, Worthington or Easton Town Center will help your budget remain flexible, with more money to spend on the things that matter most to your business.
Contact us today to set up a tour at our Dublin, Worthington or Easton, Ohio locations.
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