Form an LLC or just be an individual?

Getting Started Newbie Questions
#1

I was looking where to post this question, so it’s really not corona related but since people here use corona, that means that some of you are enjoying success on the app store, which leads me to a question:
Did you form a company in the form of an LLC or something else?

I am looking at this at an end to end perspective, and included in all that is a business plan, how I am going to treat funds (do I funnel them into my company, or do I set up a separate bank account etc).

It’s a broad question I know, for what it’s worth I am based in USA, California (los angeles) and out here people are sue happy. There are all these no so fun things we have to deal with…I’d much rather just focus on developing apps but as it stands I am the “everything man” on my little adventure with corona.

I plan on doing some big things with it, but looking for opinions of established developers and what some of the challenges are (tax wise, money wise etc etc etc).

Thanks for the comments in advance -

-Nick G [import]uid: 61600 topic_id: 11926 reply_id: 311926[/import]

#2

Speak to an accountant.

In broad terms…

  • as an individual any earnings will add to your income and will be taxed. Its like additional income. You will have to declare this new income to the IRS as you do your wages etc. This may work for you, or it may not.

  • as a LLC you pay yourself a salary, and again this adds as income. However certain funds can remain in the company taxed on a different tax as corporation tax if not paid out by the end of the tax year (or the equivalent in the US). You could then pay yourself shares from that capital at a lower tax rate. You could pay yourself the minimum tax free salary and then pay yourself the rest in shares at the end of each year.

Which is better depends on several factors.

  • Is this your only ‘job’/salary.
  • can your lifestyle/comitments sustain being paid yearly in shares?
    There is no generic answer and only your accountant can tell you what works the best for you. Overall its about tax minimisation than anything else.

Smaller considerations are tax breaks companies receive (smaller when you are small, more important when you become larger), company name/presence - again less important when you are small.

There is no general answer to this question.

[import]uid: 8872 topic_id: 11926 reply_id: 43584[/import]

#3

One more thing to add…
If you go the individual route, you can switch to a company later, but the income while an individual can’t usually be transfered to the company - you will be liable for the tax as income.

Company route - you can decide your salary and pay yourself the entire amount as salary if you decide.

Company route is safer in case u make a lot, however its a hassle to setup (well some hassle) if you don’t know if this venture will even go anywhere - it may not be worth it. Sometimes the best way is to start as an individual and then convert to a company when u see big things about to happen. Other times you don’t see those big things coming and u get stuck with a big tax bill! [import]uid: 8872 topic_id: 11926 reply_id: 43585[/import]