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I am starting an online business that I hope will grow into a store. For now the business is dropship. Do I need to incorporate or LLC my business?

I am starting an online business that I hope will grow into a store. For now the business is dropship. Do I need to incorporate or LLC my business?

 

 

There isn’t any reason you couldn’t use either one.  Depending on your state and tax situation, there may be a reason to go one way or the other, however both entities will provide the separation of business and personal assets.

 

You could also form as a sole proprietorship as the drop ship model is very low risk, unless the product has some potential safety issues you are worried about or if you have employees.  Going into a storefront, there may be some benefit to multiple LLC if you are also going to own the building so as to create some additional liability protections and potential tax benefits.

 

 

I am wanting to remove my wife as a member from the LLC. What needs to be done? We live in Texas.

I am wanting to remove my wife as a member from the LLC. What needs to be done? We live in Texas.

 

 

Our Response: Before going forward with removing a member, be sure there are no stipulations in your operating agreement that may require board action.  If there are no stipulations, you and your wife are the only members or there is no operating agreement, LLCs can easily remove members change management by making a record of the change internally and then update the records with the Secretary of State.

 

There are two items to complete with the Secretary of State.  First, LLC’s need to update their officer information each year on the Public Information Report which is filed with the Texas Comptroller of Public Accounts. This information is then sent to the SOS and the records are updated. Next, even though amendments are not required, it’s a good idea to file an amendment to update management information with the SOS, which the form is found here – https://www.sos.state.tx.us/corp/forms/424_boc.pdf.

What is the best way to handle my getting paid? Should I receive payroll from the LLC as an employee?

I am a 50% partner in an LLC (it has one other partner who also has 50%). Only I will get my regular pay/fees from the LLC. After that pay and all other expenses, my partner and I each own 50% of the profits.

What is the best way to handle my getting paid? Should I receive payroll from the LLC as an employee? Or should I be an independent contractor and receive a 1099? If it is possible for me to get a 1099, then that would be beneficial as I have many other expenses associated with my work for the company that would be eligible for tax deductions.

Our Response – By working for the LLC there are two ways to be paid which would be as a salaried employee or an independent contractor. If you are an employee, there is an additional payroll expense. If you receive 1099 income, this income would be reported as self-employment and would be taxed as such. In most cases being classified is going to be taxed lower than as an employee since the payroll taxes won’t have to be paid.

If you have a separate business that is performing the work for other clients in addition to the LLC though, you should be ok, but we would recommend double checking to be sure it is eligible as an independent contractor, otherwise there could be issues in being incorrectly categorized (See IRS info on Independent Contractor vs Employee)

 

Do you have any information about the legal protection of a single member LLC in Illinois?

Do you have any information about the legal protection of a single member LLC in Illinois?  I was asking because someone told me that the single member LLC in Illinois doesn’t have any type of protection from the legal point of view, but the multiple members LLC does have legal protection from your assets.

Also, how can I get a resale number in Illinois? I am buying blank items, then I embroider them and sell them in my shop, but some suppliers are asking me for my resale number.

 

 

Our Response: The LLC provides protection between your business and personal assets.  The LLC is a separate legal entity, so in the event of the LLC being sued, your personal assets should not be at risk, provided the LLC activities weren’t negligent, etc.  There isn’t any differentiation between a single vs multiple member LLC.  The same form is filed regardless of how many people are a part of the LLC.  There are some states that do not allow single member LLC’s but Illinois does.

When you signed up for the Illinois business tax number, you would have received a 8 digit number and resale certificate which allows the vendor to not collect sales tax.  Some vendors will just ask for the number, others will want a copy of the certificate and some may have you fill out a form –http://tax.illinois.gov/taxforms/sales/crt-61.pdf.

 

 

One member of a two member LLC received a 1099 payment. The check and 1099 was made out to the member personally – not the LLC. Can this “personal” 1099 be included in the LLC as income?

One member of a two member LLC received a 1099 payment. The check and 1099 was made out to the member personally – not the LLC.  Can this “personal” 1099 be included in the LLC as income? The payment is related to the LLC’s purpose and mission.

 

 

Answer – The short answer is yes, but it’s not recommended.

LLC’s are typically created to separate business and personal assets.  Even though the work may have been legitimately for the activities from the LLC, may call that separation into question should there be an audit.  Should the LLC ever be audited or sued, several factors will be evaluated, one of which is including the separation of business finances from the owner’s finances.  This point becomes more important if the LLC is taxed as a corporation vs partnership or sole proprietorship.

You have two options for endorsing the check that was paid to the partner rather than the LLC.

  • Write “For Deposit Only” along with the LLC’s name and account number. This is considered as a restrictive endorsement where the check can only go through the LLC’s bank account under your name.
  • Write “Pay To” along with the LLC’s name and having the partner sign their name. This is called a special endorsement where you are essentially giving the check to another “person” (in this case the LLC) to deposit in this other “persons” account.

While this isn’t ideal, the funds can be deposited with the LLC. Just try to not make it happen often so the LLC’s liability protection isn’t put at risk.

Can I own an LLC filed in a different state than I live in to run my online business?

Can I own an LLC filed in a different state than I live in to run my online business?  When you are filling out the federal tax ID form, do you put doing business in the state for that LLC, or the state you live in – especially for a drop shipping/affiliate type business that is 100% online?

 

Answer

The big question is what is the tax structure of the LLC?

I’m assuming you’re setting up single member LLC and I would guess you’re probably using a default partnership tax structure. In that case, the net income will flow through to your personal return. If you live in a state that has a state income tax, you will pay your home state income tax on the net income. Most people are setting up LLCs in states like WY, DE etc. that don’t have personal income tax, so figuring out whether you’re on the hook for taxes in two states is probably not an issue, especially if you don’t have operations or other nexus to the LLC state of formation. You might be on the hook for a smaller tax item like a franchise tax.

If you elected to have the LLC taxed as a C-Corp, then you would potentially be on the hook for state corporate tax in the state of the LLC’s formation if applicable. Again, most people are not setting up LLCs in states with personal or corporate income taxes.

Do you have to register as a foreign entity doing business in your home state?

If you’re just working from home and don’t have an office, warehouse, etc. in your home state, you can probably get away with not registering because it’s debatable whether you’re doing enough business activity to warrant the registration. Oversight on this is usually pretty minimal. Also, even if you have to notify your state tax authority of your business earnings and presence to pay a state income tax, they usually don’t talk to the secretary of state’s office and don’t use the same systems, so disclosure to tax authority won’t necessitate registration as foreign entity. The old school, safest answer would be to go ahead and register as a foreign entity + get any local businesses licenses (either state or county), but up to your own risk tolerance. Penalty for not registering is usually past fees + penalty payment and you don’t get certain benefits like the ability to sue another company within the state.

Registered agent address vs. mailing address

You need a registered agent in the LLC state of formation but not your home state. The registered agent may or may not provide mail scanning/forwarding services. You can set up a mailing address at your house, a P.O. box, or a virtual office and use that for business mail. The registered agent will receive some official documents like your EIN, possibly initial bank documents. You could use the registered agent address to sign up for other business accounts but you would want to use the mailing address for most other purposes if someone would need to contact you by mail.

Sales tax, warehouses, etc.

There can be issues surrounding these items that it would be good to talk to an accountant who’s familiar with Amazon businesses.

 

I Want To Add An Owner To The LLC. How Do I Do That?

I Want To Add An Owner To The LLC.  How Do I Do That?

– Vanessa

 

Answer

Adding a new member to an LLC is typically an easy process in most states, however there are some states that require dissolving the LLC and reforming if there is any change in ownership.

First you will want to review the operating agreement to see if there are specific procedures that need to be followed. Many LLC’s don’t have an operating agreement since they operate as individual owners, which is fine, but if you do have one be sure to review it. That being said, if you don’t have one now, you will probably want to form one to outline each owner’s rights & responsibilities in addition to profit sharing. It’s much easier to hash this out now, rather than later when disputes arise.

If you have an operating agreement, you would need to prepare an amendment to add a new member to the LLC. This amendment should include the new member’s name, amount of investment, percentage ownership in the LLC and percentage of profits and losses from business operations that will be distributed. Members then vote on the amendment.

Last, be sure to look at how the LLC is taxed and whether you need a new FEIN number. LLC’s can be established with a social security number if they are taxed as a sole proprietorship. You can get a FEIN number at no cost from the IRS.

 

Can A Husband & Wife With Separate Businesses Share An LLC?

My husband and I are both self employed. My husband just started a contract job and I have a small sewing business. Can we share an LLC even though our businesses are separate entities?

– Susan

Answer

You are able to operate multiple businesses under the umbrella of one LLC to get the liability protection and as an added benefit, will only have one tax return to file. If you are going to continue doing business under the existing sole proprietorship business names, lets say its “Susan’s Sewing” for example, you will need to file an assumed name notice form (also known as doing business as, DBA, etc) with the county you run the businesses out of.

You will also need to get a FEIN number and state business tax number for the LLC.

 

 

Georgia LLC and Social Security Benefits

 

My husband and I are partners in a LLC co.  I will be 62 years old next year and plan to file for my social security.  I need to remove my name from the ownership of the llc, so that the income will not be charged to me.  I understand in GA, a withdrawal form is required.

– Theresa, Georgia

 

Answer

There are several factors that may impact the amount of retirement benefits.  Social Security benefits will not be reduced no matter how much you earn once you reach full retirement age. If you were born 1942 or earlier you can receive full Social Security benefits at age 65. If you were born between 1943 and 1960, full retirement age increases incrementally until the recipient reaches age 67. After attaining age 66, you can earn any amount & still collect full Social Security benefits.

As an example, if you file a joint return and both you and your spouse are past the full retirement age and a combined income of between $32,000 and $44,000 is reported, you may have to pay income tax on as much as 50% of your benefits. If your combined income is more than $44,000, as much as 85% of your benefits may be subject to income taxes.

To maximize after-tax income if you are a single individual (or head-of household) you would want to keep your earned and unearned income plus one-half of your Social Security benefit under $25,000 total. If you are married, you would want to keep the same resulting jointly computed figure under $32,000. This would keep any of your Social Security benefits from being taxable.

There is no requirement to list members and managers with the Georgia Secretary of State so there is no filing to change them.  The only filing you may have to do is if you are the registered agent and that change would be made with the annual registration.

Filing LLC In California. Can I Delay The Date Of Formation To Next Year and Save On Filing Fees?

I am currently in the process of starting an LLC in California. If I file the articles of in corporation papers (LLC-1) with state this year(November/December) can I delay the effective filing date of the LLC to January 1st of next year in order to avoid the $800 minimum annual tax fee associated with the LLC( I am not selling any goods or services at the moment but plan to early next year). If so is there a separate form I also need to submit at the time I submit the LLC-1 to the state?

– Roy, California

 

 

Answer

Hi Roy

If you delay filing the Articles of Organization until after December 17th and doing no business until the following year, you will avoid paying the current years filing fee.   Filing before 12/17 or filing after 12/17 and having business activity and you will have to pay this year and again next year, regardless of whether any business is being generated.