Sole Prop to LLC and TAX

[murtix]

What is the name of your state (only U.S. law)? FL

Dear All,

Last year (2012) I started a freelance IT consulting business as a Sole Prop and it picked up well. Did the taxes with a professional tax company for 2012 in October 2013. I know it was very late, I will paying penalty and interest on top of the tax I owe (first time opening business, still learning, IT related businesses doesnt have too much to deduct). And I will be paying similar amount for 2013 tax year as well. Which makes the business not very profitable after all.

My Tax guy told me to convert the company in to an LLC. He also told me that, even though I re-open the company as an LLC in this time of year (Oct 2013), I will be able to count all the yearly earning under the LLC (until now I accepted checks as a Sole Prop). The name of the company will not be exactly the same, and I will have to open a new bank account, submit a new Tax ID number etc (I am using my SSN while doing business as Sole Prop).

What my tax guy told me sounds skeptical, thats why I wanted to get some advice before I go ahead and apply for it.

Is it really OK to count all year earnings and get the 1099 at the end of the year for 2013 under the newly formed LLC and pay taxes thru the LLC for entire 2013 ? Is it legal to do ?

Thank you for any advises.

 

[LdiJ]

What is the name of your state (only U.S. law)? FL

Dear All,

Last year (2012) I started a freelance IT consulting business as a Sole Prop and it picked up well. Did the taxes with a professional tax company for 2012 in October 2013. I know it was very late, I will paying penalty and interest on top of the tax I owe (first time opening business, still learning, IT related businesses doesnt have too much to deduct). And I will be paying similar amount for 2013 tax year as well. Which makes the business not very profitable after all.

My Tax guy told me to convert the company in to an LLC. He also told me that, even though I re-open the company as an LLC in this time of year (Oct 2013), I will be able to count all the yearly earning under the LLC (until now I accepted checks as a Sole Prop). The name of the company will not be exactly the same, and I will have to open a new bank account, submit a new Tax ID number etc (I am using my SSN while doing business as Sole Prop).

What my tax guy told me sounds skeptical, thats why I wanted to get some advice before I go ahead and apply for it.

Is it really OK to count all year earnings and get the 1099 at the end of the year for 2013 under the newly formed LLC and pay taxes thru the LLC for entire 2013 ? Is it legal to do ?

Thank you for any advises.

I am not sure why he is suggesting that you convert to an LLC at all. A single member LLC is a disregarded entity for tax purposes and therefore you would file your taxes exactly the same way you did for 2012, as a sole proprietor. In that instance no, there would be nothing illegal about doing that.

Unless he is also suggesting that the LLC make an S-corp election? However, if you do that you CANNOT do as he suggested and count all your earnings as S-corp earnings. It would be impossible to do because your S-corp election would not be valid until 2014. The IRS would know that because the IRS would know the date that you filled out the form to file the election.

You might ask your tax for specifics about why he feels this would benefit you.

 

[murtix]

I am not sure why he is suggesting that you convert to an LLC at all. A single member LLC is a disregarded entity for tax purposes and therefore you would file your taxes exactly the same way you did for 2012, as a sole proprietor. In that instance no, there would be nothing illegal about doing that.

Unless he is also suggesting that the LLC make an S-corp election? However, if you do that you CANNOT do as he suggested and count all your earnings as S-corp earnings. It would be impossible to do because your S-corp election would not be valid until 2014. The IRS would know that because the IRS would know the date that you filled out the form to file the election.

You might ask your tax for specifics about why he feels this would benefit you.

I asked him that specificly that, wouldn't be S-Corp better, he said I have to open it as LLC. I will ask your question to him. If there are no tax benefits why should I spend all the money to register it as LLC.

On the other hand; LLC removes the liability from the owner(s) personally. But in this case, being a single person LLC owner would still make me personally liable as I was Sole Prop ? or do I at least get that benefit ?

 

[FlyingRon]

On the other hand; LLC removes the liability from the owner(s) personally. But in this case, being a single person LLC owner would still make me personally liable as I was Sole Prop ? or do I at least get that benefit ?

Which liability are you envisioning. If someone extends your LLC credit, then yes there would be a shield there. If you're a one man operation, you're still liable for your own acts and an LLC will provide little shield against lawsuits.