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Episode 002: Q&A 1

solo show Oct 29, 2019

Question: I'm a photographer and am a sole-prop but have heard about s-corp and llc . . .wondering differences and if/when should change.

The short answer: It’s never a bad idea to form an LLC. It provides great legal protection.

When to form it really depends on your personal financial situation. Now is great, but weigh the risks in your biz.

To get started, listen to the podcast episode. If you’d like more info from there, check out this blog.

Then, download the Small Biz Blueprint to take the LLC Risk Assessment.


 


The Episode Transcript

Braden: (00:01)
Hello and welcome to episode two of the unfuck your business podcast. My name is Braden and I am your host. Thanks so much for tuning in. This is going to be a very short episode. I noted in the welcome episode of the podcast that every other episode that we do will be a quick bite size tip episode. So I'm trying to come up with a better, more clever name for what to call these. You can let me know if you have any ideas, but the concept is that in our Facebook group, which I would love for you to join, you can find it. It's Brayden's, SDS, B R a D E N Brayden's besties. So search on Facebook, join the group. When you join you will get a question prompt, the ask for one legal or tax question that you have in your business. So I am collecting all those questions and I am going to give some general answers to them here on the podcast.

Braden: (00:56)
So after we get rolling here with these first few episodes on match day, the plan is to release one of these shorter episodes every Tuesday. So without any further ado, I'm going to dive in. So one of the first questions we got in the Facebook group says, I am a photographer and I am a sole proprietor but have heard about escorts and LLCs. I'm wondering the differences and if and when I should change. So this is a great question to start out with because I get mild variations of this question on a weekly basis from small business creatives, a lot of photographers, uh, my first kind of tip for you is understanding what the default entities are. That's what I call them. So as soon as you start offering a service or a good in exchange for money, you have a business. And if you do not file any paperwork with the state to elect to become an LLC or a corporation, then you are a default entity.

Braden: (01:52)
So if you are a solo business owner, it means you are a sole proprietor. So you have a sole proprietorship. If you have a business partner, then the default is a general partnership. I always explain like in my courses that if you are in the fourth grade and you go open a lemonade stand with your friend Susie, you and Susie are technically operating in general partnership, whether you've formed anything or not. That's how that works. So like I said, the default is a sole proprietor for new business owners and then you can elect to become an LLC or a corporation. So the way that works is each state is a little bit different, but across the United States all States have limited liability companies and a C corporations. So you decide which one of those two you want to become and then you form it with your secretary of state.

Braden: (02:43)
It's typically pretty straightforward to form the LLC, but there are a lot of other things that you need to do like update your business licenses, get meeting minutes, do your operating agreement, all of these sorts of things, which is why I recommend working with a professional like myself to do that. But you do that and then afterwards you can fill out this handy form called a 25 53 and send to the IRS. And say, Hey IRS, I would like for my LLC to reap the benefits of sub chapter S of the tax code. And that is when we say you have an escort, an Corp is not actually a type of legal entity, it's merely a tax status. So you form an LLC or corporation and then you can elect that escort status. So that answers part of our photographers question. The other part was when should I change?

Braden: (03:31)
So they're real key in understanding an LLC is to know that LLC is provide liability protection. So if you ever have a client dispute and they Sue you or you have a client injury, any of that sort of stuff and absence of an LLC or a corporation or a formal legal entity, they can seek a judgment against you in a lawsuit and then they can try and get a lien against your bank account or your house, your retirement account, any other personal assets you have in order to satisfy that judgment. So that is what all of that means, how all that works. Obviously super scary. The point of the LLC is to protect you. And that scenario, so when you form an LLC it separates you in your business. Your LLC has its own person. You might have heard the phrase corporations or people before, well LLCs are also a more or less people.

Braden: (04:22)
When you form an LLC you're saying, Hey, I'm my own thing over here. I have a company that's its own thing and I have rules set up in place to make sure that we are separate and that's how it protects your personal assets. The trick in doing this is really knowing that you're following the correct steps in order to keep that protection in place. To answer the direct question of when you should form an LLC, it is never a bad idea to do it and that's my personal opinion. It's always a good idea to have an LLC or a formal legal entity to protect you. The question more becomes whether you're willing to spend the money to do it. So some States are very inexpensive to form LLCs and California. They are $70 to form and then a $800 a year is kind of the base price to maintain that.

Braden: (05:11)
A lot of other States are a couple of hundred dollars a year. My general guidances, if forming the LLC is not going to have a significant negative impact on your personal finances. Do it if it is going to strain your personal finances. Then really ask yourself what the inherent risks are in your business, and we'll talk more about what type of risks you have in later episodes, but that's kind of the threshold issue. LLCs do not affect your taxes. That's a common misconception. When you form an LLC, your federal and state income taxes will remain exactly the same. They don't change. You only really get tax differentials when you do S corpse or C corpse that Ali for a different episode where Pete, this one nice and simple. Look at your risk, look at your wallet, look at your own appetite for risk, and then you can make the decision on whether you want to form an LLC.

Braden: (06:11)
As always, you can ask me as well, would love to see you in the Facebook group. Again, that's Brayden's besties. And if you want more information on the topic on this episode today, I have a freebie for you called the small business blueprint and LLC risk assessment. You can download that freebie answer, I think it's like eight or 10 questions, yes or no questions, and then add up the risk and your business to the side if you really need an LLC. And then once you get the answer to that question, the blueprint will walk you through the steps you need to go through to form it. So you can find that. Go to unfuck, your biz.com and right there in the header, you'll see a button that says freebies. Click that, and you can get the small business blueprint. So that's all I have for this episode. Make sure to subscribe if you haven't already. So you can get these notices for new episodes on a regular basis and I would love it if you would also leave a review. Thank you very much and have a great day.

 

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