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The Pros and Cons to Becoming an LLC

Business

As if starting a business wasn’t challenging enough, trying to figure out whether or not you should incorporate your business and make it an “LLC” can be an extra-added headache you never imagined.


Let’s take a step back. Wondering what the heck an LLC is and why you may or may not need it. You’re not alone.

According to Peter Alizio, a New York CPA and ESQ, an LLC is the abbreviation for Limited Liability Company, which offers the company protection with the flexibility of a partnership.

Still confused whether or not your company should become an LLC? Take note of what these accountants say the pros and cons are of incorporation and filing for taxes as an LLC.

Photo Courtesy of Entity Magazine

Pros:
1. You Get Protection

When you start a company, it may be important to take your personal self out of the potential debts and liability of the company, so that you don’t destroy your personal piggy bank. If your company goes bankrupt or someone sues, your personal assets are kept out of the drama.

“Having limited liability protection is especially important if the person forming the business has a lot of assets to protect or if the business naturally has high risks associated with it (such as businesses in the health or food space),” says Pamela Kornblatt, the President of Tax Strategists, an accounting firm that provides personalized tax preparation and advice to startups, entrepreneurs, corporations and individual.

Photo Courtesy of The Balance

2. You Can Skip Corporate Formalities

One thing you can delete from your to-do list if you become an LLC is the need to deal with corporate formalities that might not be present with your business or something you need to do in order to keep the lights on.

“An LLC will not have to deal with corporate formalities i.e. board of directors or annual meetings. Instead the LLC is managed by an Operating Agreement, which is similar to that of a partnership agreement,” says Alizio.

3. Your Tax Situation Won’t Be Complicated

There is also a giant tax benefit when you decide to become an LLC. Think filing personal taxes is a giant Advil-Immune headache? Filling personal taxes and taxes for your business may be extra complicated. But becoming an LLC can streamline your taxes, especially if the LLC only has one member.

“For tax purposes, a one person LLC is called a "disregarded entity" (which means exactly what it sounds like it means, for the purpose of taxes the government disregards the fact that you have an entity),” says Kornblatt. “Rather than having a separate tax return as in the case of a corporation or partnership, a one member LLC is reported as part of the personal tax return (on a Schedule C) in the same way it would be reported if it were simply a sole proprietorship. As a result, a one person LLC results in less work for a person who prepares their own taxes and lower accounting costs if using a professional tax preparer.”

Cons:
1. Your Taxes Might Raise the Roof

There’s a catch, of course, to your taxes. This is why it may be important to know that becoming an LLC is not your only option when It comes to selecting a formation for your business.

“While an LLC avoids the dreaded "double taxation" of a C-corp, income generated through the LLC is subject to self employment tax (a whopping 15.3%!),” says Kornblatt. “With an S-corp structure, an owner providing services must receive a "reasonable salary" subject to payroll taxes (in the place of self employment taxes) but any excess profits over and above the salary are not subject to self employment taxes. This can make for significantly lower taxes for some S-corps versus LLCs making the same net profit.”

2. The IRS May Come Knocking

Having a business on your personal return may be a flag for the IRS to audit you, which is why when you have a business, it is important to stay organized and keep all receipts.

“Having a business on a personal tax return, whether a sole proprietorship or one member LLC automatically increases the risk of the tax return being audited,” says Kornblatt. “Especially since a lot of business owners do not keep adequate records (keep your receipts!), the IRS is especially fond of asking for documentation to back up expenses claimed on a return. This risk increases as the income earned by the LLC increases. Corporations (S or C) of similar sizes have much lower audit rates. “

3. Investors Might Roll Their Eyes

If you are looking for potential investors, establishing your company as an LLC may not be the best move.

“For entrepreneurs who may be looking to raise capital, an LLC may not be the right fit as many investors prefer corporate business structures, says Kornblatt.

3 Min Read
Health

7 Must-have Tips to Keep You Healthy and Fit for the Unpredictable COVID Future

With a lack of certainty surrounding the future, being and feeling healthy may help bring the security that you need during these unpredictable times.

When it comes to your health, there is a direct relationship between nutrition and physical activity that play an enormous part in physical, mental, and social well-being. As COVID-19 continues to impact almost every aspect of our lives, the uncertainty of the future may seem looming. Sometimes improvisation is necessary, and understanding how to stay healthy and fit can significantly help you manage your well-being during these times.

Tip 1: Communicate with your current wellness providers and set a plan

Gyms, group fitness studios, trainers, and professionals can help you to lay out a plan that will either keep you on track through all of the changes and restrictions or help you to get back on the ball so that all of your health objectives are met.

Most facilities and providers are setting plans to provide for their clients and customers to accommodate the unpredictable future. The key to remaining consistent is to have solid plans in place. This means setting a plan A, plan B, and perhaps even a plan C. An enormous amount is on the table for this coming fall and winter; if your gym closes again, what is your plan? If outdoor exercising is not an option due to the weather, what is your plan? Leaving things to chance will significantly increase your chances of falling off of your regimen and will make consistency a big problem.

The key to remaining consistent is to have solid plans in place. This means setting a plan A, plan B, and perhaps even a plan C.

Tip 2: Stay active for both mental and physical health benefits

The rise of stress and anxiety as a result of the uncertainty around COVID-19 has affected everyone in some way. Staying active by exercising helps alleviate stress by releasing chemicals like serotonin and endorphins in your brain. In turn, these released chemicals can help improve your mood and even reduce risk of depression and cognitive decline. Additionally, physical activity can help boost your immune system and provide long term health benefits.

With the new work-from-home norm, it can be easy to bypass how much time you are spending sedentary. Be aware of your sitting time and balance it with activity. Struggling to find ways to stay active? Start simple with activities like going for a walk outside, doing a few reps in exchange for extra Netflix time, or even setting an alarm to move during your workday.

Tip 3: Start slow and strong

If you, like many others during the pandemic shift, have taken some time off of your normal fitness routine, don't push yourself to dive in head first, as this may lead to burnout, injury, and soreness. Plan to start at 50 percent of the volume and intensity of prior workouts when you return to the gym. Inactivity eats away at muscle mass, so rather than focusing on cardio, head to the weights or resistance bands and work on rebuilding your strength.

Be aware of your sitting time and balance it with activity.

Tip 4: If your gym is open, prepare to sanitize

In a study published earlier this year, researchers found drug-resistant bacteria, the flu virus, and other pathogens on about 25 percent of the surfaces they tested in multiple athletic training facilities. Even with heightened gym cleaning procedures in place for many facilities, if you are returning to the gym, ensuring that you disinfect any surfaces before and after using them is key.

When spraying disinfectant, wait a few minutes to kill the germs before wiping down the equipment. Also, don't forget to wash your hands frequently. In an enclosed space where many people are breathing heavier than usual, this can allow for a possible increase in virus droplets, so make sure to wear a mask and practice social distancing. Staying in the know and preparing for new gym policies will make it easy to return to these types of facilities as protocols and mutual respect can be agreed upon.

Tip 5: Have a good routine that extends outside of just your fitness

From work to working out, many routines have faltered during the COVID pandemic. If getting back into the routine seems daunting, investing in a new exercise machine, trainer, or small gadget can help to motivate you. Whether it's a larger investment such as a Peloton, a smaller device such as a Fitbit, or simply a great trainer, something new and fresh is always a great stimulus and motivator.

Make sure that when you do wake up well-rested, you are getting out of your pajamas and starting your day with a morning routine.

Just because you are working from home with a computer available 24/7 doesn't mean you have to sacrifice your entire day to work. Setting work hours, just as you would in the office, can help you to stay focused and productive.

A good night's sleep is also integral to obtaining and maintaining a healthy and effective routine. Adults need seven or more hours of sleep per night for their best health and wellbeing, so prioritizing your sleep schedule can drastically improve your day and is an important factor to staying healthy. Make sure that when you do wake up well-rested, you are getting out of your pajamas and starting your day with a morning routine. This can help the rest of your day feel normal while the uncertainty of working from home continues.

Tip 6: Focus on food and nutrition

In addition to having a well-rounded daily routine, eating at scheduled times throughout the day can help decrease poor food choices and unhealthy cravings. Understanding the nutrients that your body needs to stay healthy can help you stay more alert, but they do vary from person to person. If you are unsure of your suggested nutritional intake, check out a nutrition calculator.

If you are someone that prefers smaller meals and more snacks throughout the day, make sure you have plenty of healthy options, like fruits, vegetables and lean proteins available (an apple a day keeps the hospital away). While you may spend most of your time from home, meal prepping and planning can make your day flow easier without having to take a break to make an entire meal in the middle of your work day. Most importantly, stay hydrated by drinking plenty of water.

Tip 7: Don't forget about your mental health

While focusing on daily habits and routines to improve your physical health is important, it is also a great time to turn inward and check in with yourself. Perhaps your anxiety has increased and it's impacting your work or day-to-day life. Determining the cause and taking proactive steps toward mitigating these occurrences are important.

For example, with the increase in handwashing, this can also be a great time to practice mini meditation sessions by focusing on taking deep breaths. This can reduce anxiety and even lower your blood pressure. Keeping a journal and writing out your daily thoughts or worries can also help manage stress during unpredictable times, too.

While the future of COVI9-19 and our lives may be unpredictable, you can manage your personal uncertainties by focusing on improving the lifestyle factors you can control—from staying active to having a routine and focusing on your mental health—to make sure that you emerge from this pandemic as your same old self or maybe even better.