Business questions

[PJ The Kid]

Hey ya'll

So the wife and I have a "cash business" training horses and giving lessons. As of late, it has grown quite a bit from being a hobby to starting to become a bit of an investment with decent returns. I don't have any actual numbers on me at the moment on the investments vs. returns, but they are enough that we are thinking about starting an LLC in the near future. Just wondering if it is worth it since I plan to keep my full time job as an equipment mechanic (retirement plans, insurance, etc) or if we should slow the side business down some back to the core hobby size. I know without real numbers it may be hard to answer questions about things like if taxes will kill us, etc. I guess just looking for insight on weather our little business is too small for an LLC or not.

 

[forgeblast]

I do not have an llc but a sole proprietorship. I keep thinking if I was going to have people at my place for classes I would go with a LLC to add a layer of protection.

 

[JimRB]

Our homeowners insurance wanted to cancel our policy after my with hung a farm sign. We have no students and we board no horses. We were good once we clarified that with the insurance company. You may want to make sure you are covered for running a commercial operation and also get a good sized umbrella policy. An umbrella policy is usually cheap. Make sure you have the signs hanging around in multiple places that say horses are dangerous. Our state of Georgia has the wording in a law for the sign. Reduces your risk a tiny bit but remember people sue because the sky is pink at sunset.

 

[RNeumann]

Based on your hypothetical I’d skip the LLC and go with proper insurance. It’s easier for you and definitely the ethical approach for you and those folks you may come in contact with. Their isn’t enough tax difference to justify either.

 

[Soldier415]

Based on your hypothetical I’d skip the LLC and go with proper insurance. It’s easier for you and definitely the ethical approach for you and those folks you may come in contact with. Their isn’t enough tax difference to justify either.

Not true. As a sole proprietor you are doing a schedule E and paying 13.5% self employment tax ON TOP of the income tax you pay on that same amount, essentially being taxed twice on the same income.

For my main company I went the LLC with election to be taxed as an S corp route. Business files a return and the income is then passed through to me and I pay tax on it. Company pays me a small salary that I pay withholding on which negates the SE tax.

I was a Sole proprietor before making the switch. Hired a CPA firm and what they cost me I have saved 10 fold in tax liability.

Not to mention being able to do a solo 401k with 30% company match

 

[RNeumann]

Don’t forget this is the OP’s side hustle (he has a full time job) and the business is a straight labor for cash operation- in other words the profit is in direct proportion to hours worked- and he isn’t even doing this full time!. He doesn’t have employees, doesn’t have much overhead, and doesn’t have much in the way of expenses. Oh and don’t forget it’s a “cash business.”
Factor all that in with the ongoing expenses of forming and paying for an LLC, hiring accountants etc and I’ll stand by my statement.
I will also stand by my insurance statement.
As far as making “not true” statements- I’d caution taking tax advice from someone who states they themselves have to “hire a CPA firm.” Their are several discrepancies.

Edit to fix an auto corrected word

 

[plowhog]

My approach when I had more business than I could handle was to raise my prices. Some folks chose to go elsewhere for a cheaper cost, I made more money for the time invested, and I was able to give better service since I was not overloaded. Just a thought ...

 

[s219]

It's been a while since I started my business, but I recall the main point of LLC (which can still be a sole proprietorship) is to separate your personal/private assets from the business, as a form of protection. So in other words, if someone sues the business it doesn't put your personal/private assets at risk. I don't think there is any tax benefit one way or another, as nothing I know of depends on whether the business is an LLC or not.

 

[Soldier415]

Don’t forget this is the OP’s side hustle (he has a full time job) and the business is a straight labor for cash operation- in other words the profit is in direct proportion to hours worked- and he isn’t even doing this full time!. He doesn’t have employees, doesn’t have much overhead, and doesn’t have much in the way of expenses. Oh and don’t forget it’s a “cash business.”
Factor all that in with the ongoing expenses of forming and paying for an LLC, hiring accountants etc and I’ll stand by my statement.
I will also stand by my insurance statement.

Fair points as applied to the OPs situation, I was more replying to the standalone statement you made about their not being a tax difference between the sole prop and LLC.

As far as making “not true” statements- I’d caution taking tax advice from someone who states they themselves have to “hire a CPA firm.” Their are several discrepancies.

I did not state I "had" to hire a CPA firm. I chose to do so because I prefer to have experts in their field who can do things better than me do so, to my benefit. I own two companies and half of a third, so I focus my attention and energy on the portions of the business where I am most effective and have the most expertise.

No need to start throwing insults.

 

[two_bit_score]

My approach when I had more business than I could handle was to raise my prices. Some folks chose to go elsewhere for a cheaper cost, I made more money for the time invested, and I was able to give better service since I was not overloaded. Just a thought ...

That's definitely a way to resolve the problem you describe.

TBS