January unfolded as a relatively uneventful month. We started our tax season hours on the fifteenth accompanied by a significant snowfall of eight inches. Consequently, I found myself navigating the challenges of working from home, logging around 65 hours a week. The event was reminiscent of “The Shining,” with Abby having thirteen days off, sharing in the unexpected isolation. All tax and no play...
Speaking of taxes, I still need to get my ZanderverZ tax ducks in a row. ZanderverZ is a multimember limited liability company registered in Tennessee. If you’re wonder why an author might want to be an LLC, let me explain.
Choosing the right entity type hinges significantly on state law, as regulations vary widely. In my case, Tennessee influenced my decision-making process, and it’s essential to note that your state’s scenario might differ.
So, why did I opt for an LLC for ZanderverZ? The best way to explain is to delve into why it’s not another entity type.
A Sole Proprietorship, while the simplest to establish and maintain, lacks liability protection, prohibits multiple owners, and doesn’t require state registration. A partnership, accommodating multiple owners, fails to offer liability protection and also doesn’t register with the state. For the record, having a business that’s registered with the state helps draw the line between hobbies and businesses. It’s not necessary for a business to be registered with the state to draw that line, but it certainly helps if you anticipate losses for the first few years.
A corporation was also an option. While it enhances liability protection, it separates the owner(s) from the business, necessitating a payroll setup for the owner(s). This administrative hassle seemed disproportionate for our relatively small operation.
An LLC was a fairly obvious choice for me, permitting me to include my wife as a co-owner, granting her authority to act on the business’s behalf if needed. Moreover, an LLC provides a layer of liability protection. As a multimember LLC without employees, the primary liability still rests on us, but the additional safeguard is invaluable. Not being recognized as an entity on the federal level spares me from the payroll requirement. As a multimember LLC, filing a partnership tax return introduces some complexity, but the profit or loss flows seamlessly into our personal return. So the partnership will generally not pay federal taxes.
While this overview only scratches the surface of entity type selection, it aims to shed some light on key factors. If you find yourself uncertain about the most suitable entity for your situation, seeking advice from a CPA is crucial. Making the wrong choice can be intricate to rectify once implemented.
It just so happens that I know a CPA (myself). Feel free to reach out to me for a consultation at Crisler CPA, PLLC. I’d be happy to help.
CURRENTLY LISTENING:
You Again (Instrumental) by Kate Havnevik. I'm not sure why, but I can't stop listening to this song. It's been on repeat all morning.
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