I love coaching new business owners on how to register their businesses and get all the correct steps in place for the success of their new ventures.
The most common question I get is “should I remain a sole-proprietor or register as an LLC?” and “does this matter for taxes?”
Firstly if you haven’t done any of this yet, don’t worry! It took me almost 2 years as a sole proprietor before I filed as an LLC. If you’re still small, it’s really okay.. don’t stress.
The main reason you want to incorporate your businesses is to protect yourself legally should you ever get a crazy client (which God-forbid never happens) and they come after your business assets.
An LLC gives you that limited liability (Limited Liability Corporation… *light bulb moment*) which means your personal assets cannot be touched should you ever be sued. The same is true for a Private Company (Pty Ltd).
When it comes to income taxes, most LLCs are so-called pass-through tax entities. In other words, the responsibility for paying federal income taxes passes through the LLC itself and falls on the individual LLC members.
Before you register your business (which can be done online, by the way), I recommend meeting with a CPA or researching locations that may have potential tax benefits. For example, if you’re not living in the USA and registering a remote business there, Wyoming is one of the very few states that does not have a corporate income tax. The same is true for Delaware, Nevada, and a few other states. These could potentially be a good option for you. But, as I said, reach out to someone that can help with your unique situation.
Once that is done, you need to start recording your income and expenses (even if you’re not making an income yet!). If you’re starting your business, you probably have tax-deductible expenses piling up that you’re not even aware of!
- Your business registration fee
- A paid consultation with a lawyer or accountant
- Online subscriptions such as Canva, Planoly, etc.
Those are what we call “deductibles” and can reduce your taxable income at the end of the year. If you’re not recording them, you won’t remember to take advantage of them when the time comes.
I always recommend hopping on an online accounting software such as QuickBooks (click here for 50% off your monthly subscription). However, if you’re not there yet, that’s totally fine!
A free method is recording your income and expenses is a simple Excel spreadsheet. You can create this yourself or I’m happy to help. We offer a customized Excel spreadsheet to people just getting started. Click here to download yours today.
Email me at email@example.com if you have any other questions! Happy to help ????