3 business structure tips to save money—and protect you legally
It’s easy for any paint professional, particularly those early in their tenure as business owners, to become mono-focused about chasing new business. But after business grows, addressing your company structure is critical to saving you money and avoiding legal hassles. These three tips can save you time and money right now—and in the long haul.
SET UP AN LLC
At first, it’s not uncommon for pros to hold a day job but do weekend work. However, if you find yourself working every weekend and your income is growing to the point where it’s overtaking your day job, you should strongly consider setting up an LLC (limited liability company).
An LLC is a business structure that allows for pass-through taxation, but also limits liability to your company. In other words, if a customer sues you, he or she cannot pursue your personal assets, only your business assets.
“You shouldn’t hesitate setting up an LLC as soon as you know this is not a hobby anymore,” explained Karen Mitchell, a CPA and coauthor of Contractor’s Guide to QuickBooks Pro, and author of The Organized New Business and other books for small-business owners.
Check with your state’s secretary of state office to see about necessary paperwork and fees. Fees are usually no more than a few hundred dollars annually to maintain an LLC.
It doesn’t happen often, but the one way to jeopardize your LLC protections is to comingle personal and business funds. Once you create an LLC, open a business checking account through which you pay the business’s bills, including yourself, if you are drawing a salary. Don’t use that account to pay for personal items, Mitchell noted.
CONSIDER S-CORP STATUS
A sole proprietorship is the default status for business tax filings. Under that structure, a business owner usually files a Schedule C (‘Profit or Loss From Business’ form) with his or her personal tax return. But once you start to earn more income, say above $50,000, Mitchell says it’s a good idea to file IRS paperwork to be taxed as an S-Corporation. This structure could help you avoid paying a 15.3% self-employment tax that you would otherwise pay as a C-Corporation or as a sole proprietorship.