In this video, we are going to talk about whether you should make your online business an SCorp, an LLC, a DBA or something else like that. So, let’s get right down to it.
First of all, if you are a sole proprietor, meaning that you are the only person that owns the business, and it is a small company that is doing say $500,000, what I have been told is to do it as a DBA. Now, this assumes that there is no kind of liability. If you do your business as a DBA, which stands for “doing business as,” you are not going to be protected. If someone wants to sue your business they can sue you as well. Now, that is pretty rare. However, if you are selling, for instance, something that people eat, then you might want to seek the protection of an LLC. Additionally, if you are doing something where there is the potential that someone is going to get really hurt and be able to sue, you might want to do it as an LLC. But, if it is something like, for instance, Effective ECommerce, which is my consulting company where people are probably not going to be able to sue me, there is not a lot of harm in doing it as a DBA.
One of the benefits of a DBA is that you are only going to pay $99.00 to LegalZoom.com to fill out the paperwork. Now compare that with an LLC or an SCorp, and every state is different but it is almost always more expensive to be an SCorp or an LLC. The $99.00 will get you, I think it is like three to four years as, a DBA and then you will need to renew it every three to four years
Compare that with an LLC. In California, I believe that it is $800 and I think an extra $800but each state is different. Those numbers might not be exactly correct. Plus, you have to pay a lawyer to help you with some of the filings. Not a fun process. If you are a business and you are not sure which type of entity that you should be, you should probably start out as a DBA. If you are just thinking about starting a business, you may not want to spend all that money up front on your business license. That is just a waste.
Now, if you have a more serious business or you are a little bit worried about people suing you, you should consider an LLC, an SCorp or one of the others. I am not a tax advisor so with regard to everything in this video, please consult your CPA, your tax professional. However, let me give you my call on it. An LLC is a little bit easier to own and there is less paperwork that you need to file.
As far as an SCorp, you have to jump through a few more hoops you. You do have the benefits, though, of an SCorp. For one thing, you can get a dividend at the end of the year. This is taxed at a lower rate so you say you are making a salary of $50,000 but your business makes a profit of $50,000 as well. The benefit increases as the profit increases. You can take that profit as a dividend and it will be taxed at a lower rate than just general salary. Obviously, that is the big advantage of an SCorp.
My personal opinion is if you have a smaller business or you are just starting out, it is best to started out as a DBA. My company, Bdancewear, started out as a DBA. There was really no downside until we were doing a few hundred thousand dollars. We then decided that we needed to be a little bit more legitimate. Now we are an LLC but we are taxed as an SCorp. That is, as far as I can tell, the best option. If someone out there watching this video that knows more than I do, please leave any additions or comments in the “Comments” section down below, i.e., tell me what is the negative side of an LLC tax with an SCorp. So, that is what I would go with. I think you definitely want to be some form of an SCorp because it is going to allow you to get that dividend at the end the year that is taxed at a lower rate.
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