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LLC vs. S-Corp for freelancers?
Alex Witkowicz, Photographer
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Denver | Co | USA | Posted: 3:27 PM on 06.11.09 |
->> I know this has been discussed about a zillion times, but I'm not having much luck searching on the topic. I'm also looking to hear about your personal experiences with one structure or the other working as a freelancer, especially for someone just starting out.
I went to a SCORE workshop yesterday dealing with legal and taxes for start-ups. The attorney that came to speak favored S-Corps for 99% of his clients, citing only a few rare instances that an LLC would be appropriate. That sort of threw me off; I was under the impression that LLC's were less bureaucratic and thus easier to maintain. (Less paperwork, etc.) Any thoughts on that?
I know S-Corps and LLC's offer the same liability protection, which is the main reason I'm planning to incorporate, but that makes it even more difficult trying to decide between the two. What structure did you pick, and why?
I'm also having trouble understanding exactly what sort of liability protection an LLC/S-Corp offers. If you're out shooting on location and your light stand tips and hits somebody on the head, will an LLC/S-Corps be enough to protect you, or do you need additional coverage, something like a personal liability umbrella policy?
Any other comments or suggestions are appreciated. I'm planning on getting this all set up through an attorney, but I want to be prepared before I go in.
Thanks! |
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Eric Canha, Photographer
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Brockton | MA | United States | Posted: 4:15 PM on 06.11.09 |
->> Forming a LLC or S-Corp ***MAY*** insulate you from some liabilities it will vary from state to state. In my case I was told that I would be forming a 'closely held corp" and thus I would not get much if any insulation by forming a llc. It would make filings and taxing changes but in the end if someone got bopped on the head and the llc didn't have enough insurance I'd 'most likely' be held responsible.
In most cases when it comes to the likes of a 'one man shop' the distinctions are mostly rooted in tax code. Make damn sure that the corp is insured to the teeth when it comes to liabilities. I know of a person who tripped off a 10" riser and ended up with $40K in medical bills for the broken arm. He was 70, it could have been worse, it could have been a hip, or even worse like a bleed. A million dollars is becoming thin protection in today's world.
As far as being prepared, have your last 3 or 4 years tax records, complete lists of all your assets, copies of deeds or at least KNOW FOR SURE how deeds are written. |
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Matthew Sauk, Photographer
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Sandy | UT | United States | Posted: 7:10 PM on 06.11.09 |
| ->> I believe tax wise you are going to be better off as a LLC than a S-Corp |
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Dave Einsel, Photographer, Photo Editor
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Houston | TX | United States | Posted: 10:55 PM on 06.11.09 |
->> First and foremost...consult with a financial/tax expert in your state. I am not one nor have ever played one in a movie, even one shot with a 5D MkII.
Check out:
http://www.powerhomebiz.com/vol136/structure.htm
There is a lot more paperwork and restrictions with an S-Corp but the tax savings can be significant since only the salary payed is subject to employment tax.
LLC's are basically taxed as sole proprietorships / partnerships meaning all business income is subject to employment tax.
Liability protection will likely vary from state to state.
Good Luck. |
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John Strohsacker, Photographer
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John Strohsacker, Photographer
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N. Scott Trimble, Photographer
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Lake Oswego | OR | USA | Posted: 11:54 AM on 06.12.09 |
| ->> My last three bookkeepers talked me out of LLC and said just stay sole Proprietor until I start making over $100,000 a year... |
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Samuel Lewis, Photographer
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Miami | FL | USA | Posted: 9:13 PM on 06.13.09 |
->> There are some very good reasons to work through a corporate form (e.g., corporation or LLC) beyond financial. Provided corporate formalities are maintained, the entity may help shield you from liability (it is important to note, however, that the shield is not absolute--some states will also extent tort liability to those officers, directors or employees who personally participate in the tortious conduct--however, it is better than being a sole proprietor where you have no shield against liability whatsoever).
In terms of making the decision between LLC and corporation (S-Corp refers to the tax status, not to the corporation itself), you will need to consult an attorney or tax adviser in your state. In some states, the maintenance fees for an LLC are higher than the maintenance fees for a corporation, while from a tax standpoint they are treated similarly; thus, there may be no advantage to selecting an LLC. There are, however, specific limitations as to which corporations can elect S-Corp status (e.g., number of shareholders, nationality of shareholders, etc.). |
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Jon Wright, Photographer
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Wayzata | MN | USA | Posted: 10:34 AM on 06.14.09 |
| ->> We have a new law in Minnesota involving "sub contractors". I do photo restoration for a construction company that does water, fire and storm repair. Because I sub contract my work to them and they bill the insurance company I have to at least be an LLC. I was able to set it up with limited changes to our accounting and maintain my SS number as the business ID. Be sure to cross your T's and dot your I's or it may not be recognized in a pinch. |
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Michael Fischer, Photographer
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Spencer | Ia | USA | Posted: 12:23 PM on 06.14.09 |
->> As John suggest, talk to a CPA who is experienced with corporate structure and small business.
In a LLC, any profits or losses stay within the corporation iirc. In a sub S, the profits pass through to the owner. Both have advantages as well as disadvantages.
Scott, you are taking a HUGE risk by not incorporating. The liability issues alone make some form of incorporation a must in my book. I don't take tax advice from bookkeepers, nor should you. Pay a professional and get good advice.
The cynic in me says the reason they didn't want you to do it was because there is more paperwork.
A bad reason not to incorporate. Email me if you have any questions that you'd like to discuss one on one. |
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Michael Fischer, Photographer
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Spencer | Ia | USA | Posted: 12:37 PM on 06.14.09 |
| ->> Let me clarify what I said. The reasoning behind a sub S is this: By passing the profits through to the owners, you avoid double taxation. |
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Samuel Lewis, Photographer
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Miami | FL | USA | Posted: 3:24 PM on 06.14.09 |
->> Michael,
Your message highlights the need to consult a tax professional and perhaps a lawyer, too.
As a general matter, one of the key benefits of an LLC is that you can configure it to operate more like a partnership but still obtain some of the benefits more traditionally associated with the corporate shield. However, LLCs are sufficiently flexible to operate the same way as a Sub-S corporation, passing the profits directly to the owners at year end. Thus, your statement regarding the distinction between LLCs and Sub-S corporations is not exactly correct.
Very often, how LLCs are configured is what will determine their tax status (I can't remember the test off the top of my head, but I seem to recall the IRS had a four factor test for determining whether an LLC was to be treated as a corporation or a partnership/Sub-S for tax purposes). |
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Darren Whitley, Photographer
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Maryville | MO | USA | Posted: 8:20 PM on 06.14.09 |
->> Stop asking for legal advice here. Get a lawyer, you cheapskate!
We constantly hear complaints about photographers having to deal with cheap customers. Your being cheap. Quit being cheap and get yourself proper legal advice. |
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Michael Fischer, Photographer
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Spencer | Ia | USA | Posted: 8:36 PM on 06.14.09 |
->> Sam,
You're right. I was doing something and the fact is I couldn't remember the specifics at the time. Bottom line is that Alex needs either a CPA or a Tax Attorney. As Darren points out, this is not the sort of thing you want to do cheaply. Wayyyy too much risk to ask a bunch of photographers who don't know a whole lot of tax code for the 50 states as well as the federal tax code. |
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PJ Heller, Photographer
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Santa Barbara | CA | USA | Posted: 1:27 AM on 08.23.09 |
| ->> Resurrecting this thread to ask a question of those of you who have formed, or looked into forming, an LLC. Did you form it or consider forming it in a state other than where you are actually located? |
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Allen Murabayashi, Photographer
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New York | NY | USA | Posted: 1:28 AM on 08.24.09 |
| ->> PJ: even if you form in another state for various legal reason, you'll still need an authority to do business in your actual state. As other have said, consult a professional. Don't listen to us hacks. |
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