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
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.”
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.
New parents re-entering the workforce are often juggling the tangible realities of daycare logistics, sleep deprivation, and a cascade of overwhelming work. No matter how parents build their family, they often struggle with the guilt of being split between home and work and not feeling exceptionally successful in either place.
Women building their families often face a set of challenges different from men. Those who have had children biologically may be navigating the world of pumping at work. Others might feel pulled in multiple directions when bringing a child into their home after adoption. Some women are trying to learn how to care for a newborn for the first time. New parents need all the help they can get with their transition.
Women returning to work after kids sometimes have to address comments such as:
"I didn't think you'd come back."
"You must feel so guilty."
"You missed a lot while you were out."
To counteract this difficult situation, women are finding mentors and making targeting connections. Parent mentors can help new moms address integrating their new life realities with work, finding resources within the organization and local community, and create connections with peers.
There's also an important role for parent mentors to play in discussing career trajectory. Traditionally, men who have families see more promotions compared to women with children. Knowing that having kids may represent a career setback for women, they may work with their mentors to create an action plan to "back on track" or to get recognized for their contributions as quickly as possible after returning to work.
Previously, in a bid to accommodate mothers transitioning back to work, corporate managers would make a show at lessoning the workload for newly returned mothers. This approach actually did more harm than good, as the mother's skills and ambitions were marginalized by these alleged "family friendly" policies, ultimately defining her for the workplace as a mother, rather than a person focused on career.
Today, this is changing. Some larger organizations, such as JP Morgan Chase, have structured mentorship programs that specifically target these issues and provide mentors for new parents. These programs match new parents navigating a transition back to work with volunteer mentors who are interested in helping and sponsoring moms. Mentors in the programs do not need to be moms, or even parents, themselves, but are passionate about making sure the opportunities are available.
It's just one other valuable way corporations are evolving when it comes to building quality relationships with their employees – and successfully retaining them, empowering women who face their own set of special barriers to career growth and leadership success.
Mentoring will always be a two way street. In ideal situations, both parties will benefit from the relationship. It's no different when women mentor working mothers getting back on track on the job. But there a few factors to consider when embracing this new form of mentorship
How to be a good Momtor?
Listen: For those mentoring a new parent, one of the best strategies to take is active listening. Be present and aware while the mentee shares their thoughts, repeat back what you hear in your own words, and acknowledge emotions. The returning mother is facing a range of emotions and potentially complicated situations, and the last thing she wants to hear is advice about how she should be feeling about the transition. Instead, be a sounding board for her feelings and issues with returning to work. Validate her concerns and provide a space where she can express herself without fear of retribution or bull-pen politics. This will allow the mentee a safe space to sort through her feelings and focus on her real challenges as a mother returning to work.
Share: Assure the mentee that they aren't alone, that other parents just like them are navigating the transition back to work. Provide a list of ways you've coped with the transition yourself, as well as your best parenting tips. Don't be afraid to discuss mothering skills as well as career skills. Work on creative solutions to the particular issues your mentee is facing in striking her new work/life balance.
Update Work Goals: A career-minded woman often faces a new reality once a new child enters the picture. Previous career goals may appear out of reach now that she has family responsibilities at home. Each mentee is affected by this differently, but good momtors help parents update her work goals and strategies for realizing them, explaining, where applicable, where the company is in a position to help them with their dreams either through continuing education support or specific training initiatives.
Being a role model for a working mother provides a support system, at work, that they can rely on just like the one they rely on at home with family and friends. Knowing they have someone in the office, who has knowledge about both being a mom and a career woman, will go a long way towards helping them make the transition successfully themselves.