LLC for a 'hobby' shop?

Cole2534 · Jun 23, 2017

I do various machine and fab work on the side, mainly from the shop I rent, and I've also dabbled in some consulting work. Up until recently I was just paid in cash or beer for my efforts but recently I started thinking about how to potentially use this to help my tax burden. As a single guy with good income I get raked over the coals by the tax man so I'm willing to exert some funds and effort to get this started but I don't know where to start.

I have a name I want to use and it's not in use in the state of Oklahoma.

My current costs are about $5,000/yr to have the machines sit idle, project expenses vary accordingly.

I have aspirations to do more work, but don't see myself ever turning it into my primary income.

I have friends that run small businesses of varying success so I do have some peers to talk to, but I'm curious what PM thinks.

Scottl · Jun 23, 2017

Not sure about in your state but here the simplest registration is for a dba (doing business as). It is for tax purposes and issued by the Department of Revenue. It gives no legal protection to your personal assets as an LLC does. Last time I looked the annual filing fees for an LLC were $75, which is not bad considering that it gives limited corporate status.

HuFlungDung · Jun 23, 2017

Consider that the purpose of running a business is ultimately to make more personal income which will be taxed at your normal personal rate, when your company pays it out to you. By forming an LLC, you're really splitting income between you (hopefully from profits) and your company. While you may choose to defer taking wages to grow your company, it's income is not your income, so it's not yours to spend on personal stuff unless you take it as wages anyways.

For small amounts of money, I'm not sure if it is worth it, although it is nice to have a clearly defined line between personal income and business income (and business expenses generally aren't considered with as much suspicion as they would be when everything is mixed together in the personal pot).

Miguels244 · Jun 23, 2017

The most important reaso to incorporate is liability.
If you make something and get sued for it you are personally responsible for it.
The llc shields your home and life from that.

kustomizingkid · Jun 23, 2017

Absolutely LLC for liability... as far as the tax man goes get a good accountant and play by the rules, no more no less.

Booze Daily · Jun 23, 2017

If you're looking to show investment losses to lessen your tax obligation, you should talk to an accountant. Any profit made by the company will be taxed, whether you pay it to yourself or leave it as profit in the company.

Wild West · Jun 23, 2017

Miguels244 said:
The most important reaso to incorporate is liability.
If you make something and get sued for it you are personally responsible for it.
The llc shields your home and life from that.

Maybe. If he's the only person then he is 100% liable. If it is something the court found criminal, even though it happened entirely in the LLC he is liable and there is no way around it.

Cole2534 · Jun 23, 2017

Miguels244 said:
The most important reaso to incorporate is liability.
If you make something and get sued for it you are personally responsible for it.
The llc shields your home and life from that.

I have turned down work due to potential liability so that would also be a bonus.

Where do I find a good accountant?

sealark37 · Jun 23, 2017

You don't need a good accountant. You need a Certified Public Accountant. Your business-owning friends should know of a reliable CPA. He/She can give you a good picture of the tax relief that an LLC or S-corp might offer in your situation. The hardest part of forming a corporation is finding a name that is not in use. Regards, Clark

Cole2534 · Jun 23, 2017

sealark37 said:
You don't need a good accountant. You need a Certified Public Accountant. Your business-owning friends should know of a reliable CPA. He/She can give you a good picture of the tax relief that an LLC or S-corp might offer in your situation. The hardest part of forming a corporation is finding a name that is not in use. Regards, Clark

I'll make a point to ask one of my attorney friends.

Sent from my SM-G930R4 using Tapatalk

gbent · Jun 23, 2017

If I understand your post correctly, you believe you can generate losses in an LLC and use those losses to offset income. This is an invitation to an audit. You may get some leeway when starting, but the IRS expects a business to make a profit 3 years out of 5. There are a lot of people who have tried to make a business out their hobbies, and there are a lot of tax commissioner letters and tax court rulings about hobby businesses. The IRS wins many more of the hobby business decisions than they lose.

The general rule is you have to be attempting to make a profit.

A.Delaney · Jun 23, 2017

Imho , I would not do it. Ya you get write offs but your also going to have to pay based on your income. Income that they don't know your getting now. If I had a regular day job and did this on the side. No way would I let the IRS get there hand in it. It's not worth all the added crap. Get a safe. Stash the cash and enjoy the hobby. Don't make it a job.

Wild West · Jun 24, 2017

gbent said:
If I understand your post correctly, you believe you can generate losses in an LLC and use those losses to offset income. This is an invitation to an audit. You may get some leeway when starting, but the IRS expects a business to make a profit 3 years out of 5. There are a lot of people who have tried to make a business out their hobbies, and there are a lot of tax commissioner letters and tax court rulings about hobby businesses. The IRS wins many more of the hobby business decisions than they lose.

The general rule is you have to be attempting to make a profit.

This is good advice.

Rex TX · Jun 24, 2017

A.Delaney said:
Imho , I would not do it. Ya you get write offs but your also going to have to pay based on your income. Income that they don't know your getting now. If I had a regular day job and did this on the side. No way would I let the IRS get there hand in it. It's not worth all the added crap. Get a safe. Stash the cash and enjoy the hobby. Don't make it a job.

Absolutely correct. Don't make the government your business partner

elysianfield · Jun 24, 2017

Read this carefully...if you are in a business and self employ...you are required to pay self-employment taxes...and on a quarterly basis...whether you are profitable or not. Unemployment, medical, etc. Both state and Federal.

Makin' N Bakin' · Jun 25, 2017

Cole, get LLC. Not sure about Oklahoma, but it is worth the $100 or less. I learned along time ago, and have heard of too many horror stories not to be incorporated or at least an LLC. Best advise I was given, and have owned several different businesses over the years and LLC'ed both.

gbent · Jun 25, 2017

elysianfield said:
Read this carefully...if you are in a business and self employ...you are required to pay self-employment taxes...and on a quarterly basis...whether you are profitable or not. Unemployment, medical, etc. Both state and Federal.

Somewhat misleading.

Yes, if your LLC pays you a wage, the LLC must withhold taxes and FICA. This must be paid to the fed monthly, along with the employer's share of FICA, electronically. But there is no requirement to pay yourself a wage, and there are other ways to receive money from your company.

Unemployment (FUTA) doesn't start until you pay $20,000 in wages in a quarter. But once triggered, I believe payments are required for the next three quarters, regardless of wage level.

I don't know about Oklahoma state taxes.

Cole2534 · Jun 25, 2017

Makin' N Bakin' said:
Cole, get LLC. Not sure about Oklahoma, but it is worth the $100 or less. I learned along time ago, and have heard of too many horror stories not to be incorporated or at least an LLC. Best advise I was given, and have owned several different businesses over the years and LLC'ed both.

It's about $105 in the state of OK.

Turns out, one of my attorney friends does a lot of this type of work. In exchange for a ribeye, he's offered to help me navigate this.

Next step is to find an accountant.

elysianfield · Jul 5, 2017

Gbent,
I wish you were there to explain to the IRS in response to a demand letter I received...they decided my hobby was a business...they did not ask if I was receiving dividends or salary...pay up.

LLC for a 'hobby' shop?

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