Should Your Solo Business be an LLC?

March 12, 2022
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Business: The Million Dollar Newsletter [Blog]

One of the most in-depth articles I’ve read in awhile, this post dives into “multi-SKU creators” (which means earning income from more than one source) and the logistics & business model behind one of the most successful creator-written newsletters.

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Many YouTubers rely on ad sense as their only source of income, but monetizing elsewhere is a crucial skill to learn for business sustainability.

Roberto Blake has 15 streams of income and this post features a podcast episode with him and highlights 4 tips for monetizing outside of YouTube:

Strategy: Email Subscribers Are Worth More Than Followers [Blog]

Many creators are feeling burnt out. Constant creation and trying to keep up with the algorithm is exhausting.

One way to keep in touch with your following is by maintaining an email list. You can send out relevant thoughts or content, have it delivered to their inbox (most of the time), and build relationships through replies as I believe email is a more intimate medium than social media.

If you’ve never considered building an email list, the stats in this post may change your mind.

Also read: Jack Butcher & Anthony Pompliano Show The Value of Owning Your Audience

Should your solo business be set up as an LLC?

Short answer: Maybe

Long answer: Contrary to popular belief, LLCs are not a magical business structure that can save you thousands of dollars in taxes as soon as you set one up (sorry LLC Twitter folks).

Source

But first, let's get an understanding of the difference between a sole proprietorship and an LLC:

If you're a freelancer or you've been receiving payments for a service without having an LLC set up, you're a sole proprietor by default. For any payments you receive, the income must be reported on a Schedule C form that goes along with your personal tax return.

As a sole proprietor, you can write off business expenses against your business income (which lowers your taxable income) just like you can with an LLC.

Essentially, being a sole proprietor is a valid way to do business as a solo creative.

You can legally receive payments, report the income, and write off expenses.

But there are times when it makes sense to form an LLC to support your growth.

A single-member LLC is very similar to a sole proprietorship as income is still reported on Schedule C and you can write off business expenses to lower your taxable income. But one of the first key differences between being an LLC and sole prop is the ability to get a business bank account.

To get a business bank account, you need an EIN (Employer Identification Number) which can be requested from the IRS after your LLC is formed.

It's possible to get an EIN as a sole proprietor, but the process is more complex than if you had a business entity like an LLC set up.

Note: If you have a sole proprietorship, it's recommended to set up a separate personal checking account and treat it as your business bank account to keep expenses and income separate for tax and reporting purposes

One of the biggest advantages an LLC provides is legal protection. As a sole prop, your personal assets have no protection - meaning if you were to be sued for whatever reason, they could come after your personal assets. A sole prop is also personally responsible for any and all business debts.

As an LLC, since it's a separate entity, you have much more protection. You're not personally liable for business debts in some situations and in the event of a lawsuit, your personal assets are sheltered.

For freelancers, an LLC also provides professionalism and a way to protect your Social Security Number. Since you generally provide clients with a W-9 form so they can then send you a 1099, if you're operating as a sole prop, you have to put your SSN on every form.

If you freelance for awhile, that can mean a lot of people have your Social on file. To me, it's kind of unsettling. With an LLC, you provide clients with the business' EIN and you don't have to give your personal Social.

Lastly, LLC's can provide significant tax advantages, but only if you choose to be taxed as an S Corp (or C Corp).

Most single-member LLCs choose to be taxed as a "pass-through entity" which is the same as a sole prop: any business income is reported on Schedule C and attached with your personal tax return.

But if you choose for your LLC to be taxed as an S Corp, you can save money on self-employment taxes (15.3%) by taking distributions from the business rather than everything being reported as income and being subject to both income tax and self-employment tax.

Choosing to be taxed as an S Corp generally makes sense after you've exceeded ~$75,000-$100,000 in annual income as there's more work that has to be done to make sure income is being reported appropriately and the tax savings are minimal for businesses with less income.

Full post coming soon on Creatorbread about Sole Prop vs. LLC vs. S Corp

TL;DR - Operating as a sole proprietor makes sense for many solo businesses. But as you grow, you may want to have more protection for yourself and tax flexibility, which LLCs can provide.

The biggest advantages of having an LLC over being a sole prop:

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What business skills would you add to this list? Email me at treyton@creatorbread.com

Source

Creator Crumbs

Business: The Million Dollar Newsletter [Blog]

One of the most in-depth articles I’ve read in awhile, this post dives into “multi-SKU creators” (which means earning income from more than one source) and the logistics & business model behind one of the most successful creator-written newsletters.

Money: How to Monetize Content Outside of YouTube (Like Roberto Blake) [Blog]

Many YouTubers rely on ad sense as their only source of income, but monetizing elsewhere is a crucial skill to learn for business sustainability.

Roberto Blake has 15 streams of income and this post features a podcast episode with him and highlights 4 tips for monetizing outside of YouTube:

Strategy: Email Subscribers Are Worth More Than Followers [Blog]

Many creators are feeling burnt out. Constant creation and trying to keep up with the algorithm is exhausting.

One way to keep in touch with your following is by maintaining an email list. You can send out relevant thoughts or content, have it delivered to their inbox (most of the time), and build relationships through replies as I believe email is a more intimate medium than social media.

If you’ve never considered building an email list, the stats in this post may change your mind.

Also read: Jack Butcher & Anthony Pompliano Show The Value of Owning Your Audience

Should your solo business be set up as an LLC?

Short answer: Maybe

Long answer: Contrary to popular belief, LLCs are not a magical business structure that can save you thousands of dollars in taxes as soon as you set one up (sorry LLC Twitter folks).

Source

But first, let's get an understanding of the difference between a sole proprietorship and an LLC:

If you're a freelancer or you've been receiving payments for a service without having an LLC set up, you're a sole proprietor by default. For any payments you receive, the income must be reported on a Schedule C form that goes along with your personal tax return.

As a sole proprietor, you can write off business expenses against your business income (which lowers your taxable income) just like you can with an LLC.

Essentially, being a sole proprietor is a valid way to do business as a solo creative.

You can legally receive payments, report the income, and write off expenses.

But there are times when it makes sense to form an LLC to support your growth.

A single-member LLC is very similar to a sole proprietorship as income is still reported on Schedule C and you can write off business expenses to lower your taxable income. But one of the first key differences between being an LLC and sole prop is the ability to get a business bank account.

To get a business bank account, you need an EIN (Employer Identification Number) which can be requested from the IRS after your LLC is formed.

It's possible to get an EIN as a sole proprietor, but the process is more complex than if you had a business entity like an LLC set up.

Note: If you have a sole proprietorship, it's recommended to set up a separate personal checking account and treat it as your business bank account to keep expenses and income separate for tax and reporting purposes

One of the biggest advantages an LLC provides is legal protection. As a sole prop, your personal assets have no protection - meaning if you were to be sued for whatever reason, they could come after your personal assets. A sole prop is also personally responsible for any and all business debts.

As an LLC, since it's a separate entity, you have much more protection. You're not personally liable for business debts in some situations and in the event of a lawsuit, your personal assets are sheltered.

For freelancers, an LLC also provides professionalism and a way to protect your Social Security Number. Since you generally provide clients with a W-9 form so they can then send you a 1099, if you're operating as a sole prop, you have to put your SSN on every form.

If you freelance for awhile, that can mean a lot of people have your Social on file. To me, it's kind of unsettling. With an LLC, you provide clients with the business' EIN and you don't have to give your personal Social.

Lastly, LLC's can provide significant tax advantages, but only if you choose to be taxed as an S Corp (or C Corp).

Most single-member LLCs choose to be taxed as a "pass-through entity" which is the same as a sole prop: any business income is reported on Schedule C and attached with your personal tax return.

But if you choose for your LLC to be taxed as an S Corp, you can save money on self-employment taxes (15.3%) by taking distributions from the business rather than everything being reported as income and being subject to both income tax and self-employment tax.

Choosing to be taxed as an S Corp generally makes sense after you've exceeded ~$75,000-$100,000 in annual income as there's more work that has to be done to make sure income is being reported appropriately and the tax savings are minimal for businesses with less income.

Full post coming soon on Creatorbread about Sole Prop vs. LLC vs. S Corp

TL;DR - Operating as a sole proprietor makes sense for many solo businesses. But as you grow, you may want to have more protection for yourself and tax flexibility, which LLCs can provide.

The biggest advantages of having an LLC over being a sole prop:

..more crumbs

🖤 11 best community platforms for creators

⏰ How to manage your time as a creator

👀 Long-form video essays take off as viewers search for more nuanced content

📈 50 real life examples of building leverage

📚 People are buying more books than ever because of TikTok

🎥 YouTube to pay podcasters $50k-300k to create video form episodes as competition with Spotify heats up

📱 4 ways to stop doomscrolling

🇺🇸 White House informing TikTok stars about Russia-Ukraine war

Freelance Finds: How to Find the Right Clients with Stefan Palios (blog interview)

What business skills would you add to this list? Email me at treyton@creatorbread.com

Treyton DeVore

Treyton is a creative entrepreneur, writer, and financial planner.

He's been featured in Morning Brew, NerdWallet, Marketwatch, and more.

treytondevore.com

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