Business or hobby?

[on_my_own]

I have a website selling some stuff and 100% of everything is done online. If I make a few hundred dollars a month right now, should I even bother to go through filing for an LLC, opening a business checking account etc? I plan on seeing a personal banker to get some answers or an accountant, but wanted to get an idea of what I was getting myself into. Thanks

[huggytree]

an accountant is who you need to see and talk to

it all depends on if you want to avoid taxes or not i guess....if you have $3,000 in income a year from it im not sure if it legally needs to be a business or not...

[Freelancier]

If you plan to grow it, might as well take the time now to get the right company structure in place. Talk with your accountant to make sure you are making the right choices for your financial situation.

[on_my_own]

Thanks guys, I would assume I would make around 2-3 k only from this hobby I do outside of work and 100% of this is from online sales. Everything is just going to my personal paypal account and I have yet to set up anything official. I guess it's better to speak to an accountant as opposed to a personal banker for advice?

[Freelancier]

A "personal banker" is just this person trying to sell you banking products. An accountant handles your taxes and finances, so that's the person you want on your team to make decisions like this one.

[zachariahlogan]

I have a website selling some stuff and 100% of everything is done online. If I make a few hundred dollars a month right now, should I even bother to go through filing for an LLC, opening a business checking account etc? I plan on seeing a personal banker to get some answers or an accountant, but wanted to get an idea of what I was getting myself into. Thanks

From my experiance, it depends on the annual revenue and the state you live in. If you make 200, dollars a month, that equals 2400 dollars a year. In Tennessee, that is legally a hobby, and not a business.

Now lets say your website made 400 dollars a month,
which equals 4800 dollars a year. You now have 1800 reasons to seek professional advise. (Key Word) an accountant or lawyer worth his salt, won't charge you for answering a question, in exhange for your repeat business. During the growth of your business.

Actually, when my dad started our company, he actually did it at the bank. The bank manager helped him fill out all the paper work, and gave instructions on what he needs to do next.

While they may not list this as a service, it has been known to be done. And hey, why not right? If they help you, then you will probablly keep your money at their bank right?

[on_my_own]

From my experiance, it depends on the annual revenue and the state you live in. If you make 200, dollars a month, that equals 2400 dollars a year. In Tennessee, that is legally a hobby, and not a business.

Now lets say your website made 400 dollars a month,
which equals 4800 dollars a year. You now have 1800 reasons to seek professional advise. (Key Word) an accountant or lawyer worth his salt, won't charge you for answering a question, in exhange for your repeat business. During the growth of your business.

Actually, when my dad started our company, he actually did it at the bank. The bank manager helped him fill out all the paper work, and gave instructions on what he needs to do next.

While they may not list this as a service, it has been known to be done. And hey, why not right? If they help you, then you will probablly keep your money at their bank right?

I'm thinking along these lines exactly. I guess right now I'm just a sole proprietorship, but obviously the goal is to grow and I want to make sure I am going about it as efficiently as possible

[ActionMan]

If you plan on growing your "hobby" into a business then I would recommend setting up an LLC or some other business structure. This will enable you to create a history for your business which might come in handy for negotiating wholesale orders, credit, or in obtaining financing, should you need that in the near future. It will also insulate you against certain liabilities, which a sole proprietorship will not.

[zachariahlogan]

If you plan on growing your "hobby" into a business then I would recommend setting up an LLC or some other business structure. This will enable you to create a history for your business which might come in handy for negotiating wholesale orders, credit, or in obtaining financing, should you need that in the near future. It will also insulate you against certain liabilities, which a sole proprietorship will not.

ActionMan is exactly right, if you do decide to file as an LLC, you can protect your personal assets from your companies assets. But I must warn, the annual filing is a little more expensive. To be 100% honest, It's unreasonable for me at least to name all the pros and cons of what I think an LLC can offer. That's simply because I have no idea about your business. But, one of the most important parts about growing a company is the management of credit. Which is the lifeblood of deals. so Actionman extremely good point!

[on_my_own]

Actually, this business has very little startup and I won't need or see a need for loans etc. I would be happy if I can make 700-1k in profit a month which I think is a fair assessment. Based on this very little info, is it even worth it for me to see an accountant right now or maybe wait a few more months and see if this business can actually stay afloat? Thanks for all the advice everyone!

[Freelancier]

The reason you get the LLC is not because of how much money you might make, but how much of your assets you're putting at risk by not doing it. Same with having an accountant. You don't need those for success, you need those to help prevent a catastrophic failure.

[on_my_own]

The reason you get the LLC is not because of how much money you might make, but how much of your assets you're putting at risk by not doing it. Same with having an accountant. You don't need those for success, you need those to help prevent a catastrophic failure.

I plan on opening a business account soon, but not before I do some more research on what is required. I understand an LLC protects your personal assets from liabilities and such. I have taken out no loans and don't plan on it for this small business. So if I file for an LLC such as "abc LLC" and open a bank account abc LLC dba "company name" I would also need to file for a DBA along with the LLC, is this correct?

[Freelancier]

Yes, if you want an alias for your business name that's registered (with your county, not the state), then you get a d/b/a registered for the name. But someone in the next county can do the same, so I'm not a huge fan of d/b/a's for naming a business unless it's very localized.

[TAAccounting]

On My Own:

In my professional opinion, I would recommend...
1. Filing for an LLC and getting an EIN for your business
Reasons: An LLC will grant you the basic protections for your personal asset and in a world of lawsuits, this is almost a must now to do any sort of business.
2. Open a business checking account with your EIN
Reasons: A business checking account will not only help you and your accountant in the long run when it comes to tracking your financials and growth, it will also assist with protecting you against liabilities.
3. Tax Benefits
Reasons: An LLC grants you some tax benefits, such as being able to carry your losses to the following year. Being able to depreciate assets. Tax deductions on your home office and postage will not be scrutinized as severely. But the biggest one I see is moving you from "Hobby" to "Business".

Tax law dictates that a "Hobby" may only deduct expenses up to its income. Any additional expenses are simply dropped and unrecognized. However, an LLC gives you the ability to recognizes those additional expenses and allows you to carry a loss to subsequent years -- lowering the taxes you owe.

The other tax benefit is, you will never have to worry about 35% taxes on revenue. An LLC could become unprofitable and not be subjected to 35% taxes as it is listed as a business. A Hobby, if it becomes unprofitable, could be subjected to 35% taxes on the dollar since the IRS views it as just a "Hobby".

I hope this helps. Let me know if you have any additional questions.

Best Regards,
Tran Nguyen
Accountant
TransActions Accounting LLC (http://www.TAAccounting.com)

[on_my_own]

On My Own:

In my professional opinion, I would recommend...
1. Filing for an LLC and getting an EIN for your business
Reasons: An LLC will grant you the basic protections for your personal asset and in a world of lawsuits, this is almost a must now to do any sort of business.
2. Open a business checking account with your EIN
Reasons: A business checking account will not only help you and your accountant in the long run when it comes to tracking your financials and growth, it will also assist with protecting you against liabilities.
3. Tax Benefits
Reasons: An LLC grants you some tax benefits, such as being able to carry your losses to the following year. Being able to depreciate assets. Tax deductions on your home office and postage will not be scrutinized as severely. But the biggest one I see is moving you from "Hobby" to "Business".

Tax law dictates that a "Hobby" may only deduct expenses up to its income. Any additional expenses are simply dropped and unrecognized. However, an LLC gives you the ability to recognizes those additional expenses and allows you to carry a loss to subsequent years -- lowering the taxes you owe.

The other tax benefit is, you will never have to worry about 35% taxes on revenue. An LLC could become unprofitable and not be subjected to 35% taxes as it is listed as a business. A Hobby, if it becomes unprofitable, could be subjected to 35% taxes on the dollar since the IRS views it as just a "Hobby".

I hope this helps. Let me know if you have any additional questions.

Best Regards,
Tran Nguyen
Accountant
TransActions Accounting LLC (http://www.TAAccounting.com)

Thanks for the advice Tran! Very good points you made. At this point, I don't think it would be necessary to file for an LLC after speaking with a few other people who are doing the same thing as me. Like I said, this is really a hobby at the moment and there are basically very little expenses since everything is online based and I only spend money on web hosting and some website maintenance I pay a designer to do. In your opinion, would it really be necessary to file an LLC and get an EIN, business account for a business that is barely making maybe a few hundred dollars a month at the moment? If I can continue to increase profits, I would see an accountant and discuss everything you've mentioned above.

[Wozcreative]

Actually, this business has very little startup and I won't need or see a need for loans etc. I would be happy if I can make 700-1k in profit a month which I think is a fair assessment. Based on this very little info, is it even worth it for me to see an accountant right now or maybe wait a few more months and see if this business can actually stay afloat? Thanks for all the advice everyone!

See an accountant for sure. If you only want this as a hobby then don't bother. But if you DO want this to become a business, you need to see an accountant.