Have an LLC
zachholman.com
zachholman.com
No it won't.
> "it’ll help you accept payments"
No it won't.
> "or sign up for a bank account"
No it won't.
An LLC doesn't make those things any easier than they already are (very easy) as a sole proprietor.
An LLC only does the liability thing. And that's fine. Just don't make other things up. You don't need to.
No it doesn't. Sole proprietors get EINs just fine. It's literally the first option on the first page of the application. https://sa.www4.irs.gov/applyein/legalStructure
> "and DUNS number"
No it doesn't. Sole proprietors can get DUNS numbers just fine. It's literally the first option when you tell them how your business is structured right after telling them your name and email address.
> "Yes it absolutely helps with accepting payments"
A billion people accepting payments in every possible form without being incorporated say that you're wrong. No method of payment processing, from credit cards to memecoins, cares whether you're incorporated.
> "having an EIN is necessary in many cases"
Again, getting an EIN and forming an LLC are completely unrelated.
Credit card? No. ACH? No. Wire transfer? No. Cash? No. Crypto? No. Check? No. IOU on a napkin? No. Pokemon card? No. Sex? Weirdly illegal in most places, but still no.
...uh...which ones did I miss?
Yes, you can go get a personal loan, or a retail banking account, or a personal payment processing account, but as I said, you're going to be locked out of a lot of B2B products.
Example, since you edited to add examples: I have several business bank accounts and far too many Stripe accounts all registered as sole prop. I haven't had to take a loan but I do have a sole prop credit card. My understanding is that even with an LLC a bank is going to require a personal guarantee for a loan.
What it does do is that since it provides a rigid structure, it compels law abiding citizens to do those actions, not forcing still.
You would have a hard time proving liability if you didn't have separated finances.
Also, you should separate finances as a sole proprietor too.
An LLC will require you, under civil or criminal penalty for non-compliance, to separate personal and work finances.
You don’t even need that to start; you set up Capital One (for example) business accounts using your SSN. The EIN is just to avoid putting your personal SSN on invoices.
LLC matters if you think you’ll have liability risks.
In order to do that, your LLC has to elect to be taxed as an S-corp, which requires it to file its own return. Worse, certain states and cities will impose a corporation tax on it.
Otherwise, if you retain disregarded entity status, you have to use your personal SSN for invoices. The corporation EIN is then mostly for employment tax purposes.
(Not actual tax advice)
"For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number (TIN) and Certification, the W-9 should provide the owner’s SSN or EIN, not the LLC’s EIN." [0]
[0] https://www.irs.gov/businesses/small-businesses-self-employe...
> In order to do that, your LLC has to elect to be taxed as an S-corp, which requires it to file its own return
I think your interpretation is wrong and you have stripped the context on your IRS advice you quoted, changing the meaning. At the start of the paragraph containing your quote, it says "For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner's social security number (SSN) or employer identification number (EIN) for all information returns and reporting related to income tax."
IMO, this has has to do with how one files their income and/or report to the IRS - as a pass-through entity, the IRS expects the human behind the single-member to file the income under their own own SSN even as after are distributing invoices with their LLC's EIN. IANA(Tax)L
The entire quote on the IRS's webpage: "For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number (TIN) and Certification, the W-9 should provide the owner’s SSN or EIN, not the LLC’s EIN.
For certain Employment Tax and Excise Tax requirements discussed below, the EIN of the LLC must be used. An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed below."
The original statement was SSN hiding for invoices, that's directly covered in the W-9 example. You can (have to) hide your SSN on W-2s, but not the W-9s you give to customers.
1) Unless you only take card payments through e.g. Stripe, at which point your SSN information goes to Stripe not the client.
2) You can get a personal EIN, and then you don't need to share your SSN with your clients.
I have an EIN for my Sole Prop consulting business, and no LLC. They are orthogonal concepts.
It’s really easy to get an EIN online without forming an LLC. This is sufficient for any sole proprietor business where you don’t need liability protection or employees.
"If you are a sole proprietor and you have an EIN, you may enter either your SSN or EIN.
If you are a single-member LLC that is disregarded as an entity separate from its owner, enter the owner’s SSN (or EIN, if the owner has one). If the LLC is classified as a corporation or partnership, enter the entity’s EIN" [0]
Anyone can get an EIN for their sole proprietorship business (just one, though) and use it on tax forms.
This is not my experience. My costs are higher, but the costs offset and then some by tax advantages.
Sharing here, to give a picture of what a real single person LLC looks like, compared to a vanity hobby LLC as described by OP.
I'm a contractor with a registered LLC S-Corp in the US. Almost all of my income is 1099 from one source. I was converted from W-2 to contract when my employer was acquired, my job role did not change. You might call me a misclassified full time employee. I could report this of course, and then I would burn my professional contacts and lose my job. So I don't.
I hire myself, pay myself a fair market rate as a salary, and run a payroll just for me. And I provide myself a few benefits from the LLC, like health insurance.
I'm required to keep up with a pile of quarterly and yearly fillings between the state, county, city and IRS. This is a non trivial amount of time and effort. I have to maintain separate business books and bank accounts in coordination with my accountant. I don't actually get to access the money I earned until it exits the business entity through a controlled process. I have to file business taxes separate from personal taxes. I still have to pay quarterly estimates on my personal taxes too.
My family health insurance is roughly $12k this year. If I purchase that insurance directly, I use post-tax income to do so. I'd pay ~$4k in taxes to take home the ~$12k income used to buy health insurance. But when the LLC buys the health insurance and provides it as a employee benefit, the ~$12k is not taxed.
The salary I pay myself is taxed at ~37%. The same as if I just filed as self employed. But the business income I earn over that salary is taxed at ~20%. This is the biggest advantage. The gap between a "fair market value" for my role, and my actual contract rate. In that gap, the LLC structure saves me 20% on taxes by labeling that portion of income as "shareholder profit disbursement".
Rough yearly costs:
$150 registered agent service $150 state registration filing $2500 tax prep and account services throughout year $1500 payroll services, including payroll tax filings
Rough yearly tax advantage:
$15,000
Your jurisdiction might not do that, but I'd be damn careful and if you are liable that way, they might let you off the hook on the interest if you went back and declared it correctly before they do.
Also, what type of LLC should it be?
Delaware is for big companies.
However most software engineers don't engage in the tech business at all outside of regular employment. It's not useful for them
A formal business structure is good (but not required!) if you have employees and/or business partners, or if your attorney tells you you need one. IME as a solo entrepreneur an LLC (or two, in my case) just invited more paperwork into my life.
You know what actually functionally limits liability as a solo business? Good contracts backed up with business insurance.
You don't need an LLC to build things and sell things. And you also get the downsides of needing to stay at an office to be able to be served or having to have your active home address be publicly viewable.
Recent personal discovery about an LLC, useful for gaining PDK access to proprietary fabs, so I can finally try touching lower process nodes again that are not open source, despite being out of university and not having a job that gives me the PDK access.