When you first start, you’ll probably begin as a sole proprietor. This frequently used business structure offers simplicity but leaves you open to liability. Plus, you’ll need to pay your quarterly taxes.
One disadvantage of the sole prop structure is that you remain liable for the business’ actions. Therefore, an unhappy customer could theoretically come after your home or other assets if they decide to sue.
You can separate personal and business liability by forming a single-member limited liability company (LLC). This structure separates your business debts and keeps lawsuit-happy individuals from coming after everything you own. Every state has different rules, but in general, you file articles of incorporation with the state and publish your listing in an approved periodical. While doing so costs money, it pales in comparison to the alternative.
However, as a single-member LLC, you will still get taxed as a sole prop. If you want to reduce the amount of taxes you pay, talk to an advisor about whether forming an S-corporation is right for you. Once your advisor explains the considerable tax advantages, you’ll be able to decide whether the extra bookkeeping duties can put more money in your pocket.