New business - sole proprietor the way to go?

[moneymatters242]

I'm getting ready to start a part-time website business of a blog-like nature.  I expect to have minimal to no income after expenses for a while as I get the site stood up, start populating content, & figure out how to increase visitors (which I expect to be difficult and drawn out).  For a business like this, I'm thinking I shouldn't need the liability protection of a LLC (I've done trademark/similar domain searches and seem to be in the clear), and it sounds like there's no real tax advantage of an S-corp through a LLC until I start earning income, so I'm thinking sticking with sole proprietor for now is best.  Am I missing anything?  Does this make sense to others?

Also, I'm currently still working a day job but am hopeful to be FIRE'd, possibly as early as next year.  Best that I can gather, it would actually be in my best interest tax-wise to start the business this year even if I don't have a lot of time to put into it yet since I could deduct all my business related expenses (reducing my taxes incurred from my day job income significantly, a lot more I could if I had far less income coming in after FIRE).  Does that make sense to others also?

[Archipelago]

Hi there,

I'm not an accountant, lawyer or certified financial professional, but I've done various side hustles and built a business to the point of full self-employment. You're not missing anything.

Sounds to me like you're good to go on everything in your post. Sole prop is totally fine for starting out what you have in mind. It comes through your personal return via Schedule C and is simple enough for tax purposes. You want a sizeable income before getting into an S-corp.

Your second paragraph, I believe (and I could be wrong) you might be experiencing some "analysis paralysis" on moving forward with your side hustle idea. No need to get hung up on legal structure, tax implications, wondering if you have enough time for it, etc. Nothing wrong with putting those to the side, going for it now, and worrying about them later when the side hustle gets to that stage. I could be way off kilter in this impression of your post, so apologies if that's the case!

Good luck and get after it now! :)

[Michael in ABQ]

Sole proprietor is fine for starting out, especially in a low-risk venture like this. If you were going to be doing something where there's some potential liability an LLC would make more sense. In my state running my side hustle through an LLC vs. sole proprietorship is about $100 a year to maintain a registered agent. In California it's going to be $800 or more.

S-Corp doesn't make much sense until you're making $50-100k in profit. Also, S-Corp is just a federal tax filing status. As far as your state is concerned, you're a sole proprietor, partnership, LLC, or Corporation.

[moneymatters242]

Thanks for your replies!  Very helpful.

[SeattleCPA]

Sole proprietor is fine for starting out, especially in a low-risk venture like this. If you were going to be doing something where there's some potential liability an LLC would make more sense. In my state running my side hustle through an LLC vs. sole proprietorship is about $100 a year to maintain a registered agent. In California it's going to be $800 or more.

S-Corp doesn't make much sense until you're making $50-100k in profit. Also, S-Corp is just a federal tax filing status. As far as your state is concerned, you're a sole proprietor, partnership, LLC, or Corporation.

Fwiw agree 1000% with Michael.

[Chris Pascale]

Sole proprietor is fine for starting out, especially in a low-risk venture like this. If you were going to be doing something where there's some potential liability an LLC would make more sense. In my state running my side hustle through an LLC vs. sole proprietorship is about $100 a year to maintain a registered agent. In California it's going to be $800 or more.

S-Corp doesn't make much sense until you're making $50-100k in profit. Also, S-Corp is just a federal tax filing status. As far as your state is concerned, you're a sole proprietor, partnership, LLC, or Corporation.

Fwiw agree 1000% with Michael.

Agreed.

[cool7hand]

Forgive me for jumping in, but what sort of revenue requires a shift from a sole proprietorship into an LLC or S Corp?

[desk_jockey]

Forgive me for jumping in, but what sort of revenue requires a shift from a sole proprietorship into an LLC or S Corp?

The question on revenue to justify moving from a sole proprietor to an S-corporation was answered above.  At $100K revenue above direct costs, for example, the owner could take both a salary and dividend from the company thus potentially lowering their taxes.

The factor on moving from a sole proprietor to an LLC is not an issue of revenue, as the tax treatments are generally the same.  This is a question of risk and liability. Someone writing an innocuous blog may be fine staying as a S.P. with revenues in the thousands, whereas someone who rents out lawnmowers may want to form an LLC before earning the first dollar.

[cool7hand]

Forgive me for jumping in, but what sort of revenue requires a shift from a sole proprietorship into an LLC or S Corp?

The question on revenue to justify moving from a sole proprietor to an S-corporation was answered above.  At $100K revenue above direct costs, for example, the owner could take both a salary and dividend from the company thus potentially lowering their taxes.

The factor on moving from a sole proprietor to an LLC is not an issue of revenue, as the tax treatments are generally the same.  This is a question of risk and liability. Someone writing an innocuous blog may be fine staying as a S.P. with revenues in the thousands, whereas someone who rents out lawnmowers may want to form an LLC before earning the first dollar.

Thanks! (And sorry I missed this above.)

[BlueHouse]

Forgive me for jumping in, but what sort of revenue requires a shift from a sole proprietorship into an LLC or S Corp?

The question on revenue to justify moving from a sole proprietor to an S-corporation was answered above.  At $100K revenue above direct costs, for example, the owner could take both a salary and dividend from the company thus potentially lowering their taxes.

The factor on moving from a sole proprietor to an LLC is not an issue of revenue, as the tax treatments are generally the same.  This is a question of risk and liability. Someone writing an innocuous blog may be fine staying as a S.P. with revenues in the thousands, whereas someone who rents out lawnmowers may want to form an LLC before earning the first dollar.

I had an S-corp for the past 10 years, not because of risk (there was none as a single-person company), but because I wanted to maximize the tax-advantaged savings in my 401k.  I was able to save 53 K per year in my 401K until I turned 50, then could save even more!  This is how I got to FI. 

Still, the last few years, I kind of wish I had done something easier because once I lost interest, I no longer enjoyed the extra work or expenses of payroll, annual reporting, etc.  But my very first client really only wanted to deal with corporations because of the government work and reporting requirements, so that mattered too.