Sole Proprietorship or Single-Member LLC:

Sole Proprietorship or Single-member LLC

Which is Right for Your Business?

With the internet at your fingertips, going into business for yourself has never been easier. Whether you are a freelancer, a consultant, or an entrepreneur, your web presence introduces you to potential clients around the world. There are unlimited possibilities to expand your business and reach new markets. However, choosing a business model  can be overwhelming. There are many different options for your corporate structure. The most common choices are Sole Proprietorship or a Single-member LLC. Each one has its benefits and drawbacks, but here are a few questions to help guide your decision.

What are the Differences Between Sole Proprietorship and an LLC?

Sole Proprietorship is the most basic structure and requires minimal paperwork. Essentially, when you begin doing business, you are operating as the sole proprietor. There is no legal separation between you and your business. However, it requires you to separate your personal and business assets. You must maintain separate accounts for each.

Single-member LLCs are limited liability companies  that are owned and operated by a single person. The owner must file paperwork with the state where they plan to do business and comply with all local regulations. For tax purposes, they are considered ‘disregarded entities.’ However, LLCs are separate legal entities when it comes to questions of liability. This business structure protects the owner’s and the company’s assets from any claims or lawsuits brought against the other. It requires more time and paperwork to set up, but can protect you and the future of your company.

What are the Tax Advantages and Disadvantages?

Both models can  file with personal income taxes using Schedule C. You simply list your company’s income and expenses on your return. However, accurate bookkeeping is crucial. If you don’t stay on top of your records, it could make the filing process more complicated than it needs to be.

The major responsibility for a sole proprietor is the self-employment tax. You are responsible for both the employer’s and the employee’s share of FICA taxes which is 15.3%. The taxation rates are higher, although the employer share can be deducted as a business expense.

Single-member LLCs also have the option to file as a C Corporation. Depending on the owner’s income, paying the corporate taxation rates may be more advantageous. The laws relating to corporate taxation vary between states. Filing as a corporation could get you a larger return depending where you live. There are a number of factors to consider when choosing how to file, but owning an LLC gives you options.

How Does it Affect Liability?

The greatest advantage of forming a Single-member LLC is liability protection. Since a sole proprietor and the business are considered one entity, you are left vulnerable. Since the LLC is a separate legal entity, there is no personal liability for the owner. All of your private assets are shielded under the umbrella of the LLC. This means that your home, vehicle, and accounts cannot be seized in the case of indebtedness or bankruptcy. Although financial contributions to the Single-member LLC may be at risk, your personal assets are off limits.

This protection also works both ways. Your business assets are safeguarded against personal liabilities, debts, or bankruptcy. If you suffer personal misfortunes, the LLC will protect your business from personal creditors. Keep in mind this separation can’t be maintained if you ‘pierce the corporate veil.’

Should I Choose Sole Proprietorship or Single-member LLC?

Every company’s needs and situations vary over time. As your company grows, these needs evolve as well. Both structures have their advantages and disadvantages, but you’ll need to choose one. Sole Proprietorships are easy to form and dissolve in addition to offering pass-through taxation. While it does require more paperwork, a Single-member LLC provides liability protection and flexibility when filing taxes.

If your business is operating with little or no liability, sole proprietorship is probably your best option. However, if you plan to expand your business, incorporate other LLCs, or convert to an S corporation down the line, you should consider a Single-member LLC. Remember, these are only general suggestions to lead you in the right direction. Make time to sit down with your financial advisor to decide which structure is best for your business.

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Writing off Charitable Donations for Tax Benefits

Writing off Charitable Donations for Tax Benefits

Perhaps it is only a trick of the imagination, but every year it feels as if my home becomes unbearably cluttered after the holidays. Between the growing mountain of decorations and unused items in storage, it is easy to see the need for the annual spring cleaning. However, you may want to ask yourself if your unwanted junk has any further value before hauling it away. If you have ever thought about donating your things for a tax break, here’s what you need to know about writing off charitable donations.

Charitable Donations to Qualified Organizations

The Internal Revenue Service has strict criteria for writing off charitable donations. Before dropping off your items, make sure that the organization is eligible. According to the government website, the organization must operate for charitable, scientific, educational, literary or religious purposes.  This definition also includes foundations dedicated to the prevention of cruelty towards children and animals as well as some sports competitions.

Listed below are some common recipients for charitable donations.

  • Religious organizations like churches, synagogues, mosques, and temples
  • Charitable organizations like the Salvation Army, Goodwill, and the American Red Cross
  • Nonprofit organizations like hospitals, schools, and volunteer fire departments
  • Veteran’s’ groups
  • Cultural organizations
  • Public parks and recreation projects

Itemize your Tax Return

The only way to receive a tax break for your charitable donations is to itemize your deductible expenses on Schedule A. Your annual deductions must exceed the standard deduction limit for 2019 to qualify. Last year this amount was $12,200 for singles and $24,400 for married couples. The instructions for Schedule A for claiming gifts to charity can help guide you through your next tax return.

Currently, you are allowed to deduct up to 50% of your adjusted gross income. Keep in mind that certain organizations may affect this limit. Itemizations can become cumbersome and confusing, so it’s best to consult the government website if you have specific questions about your contributions.

Keep Receipts for Writing off Charitable Donations

Just like any other claimed deductions, you will need receipts for writing off charitable donations. This is especially important for gifts greater than $250 which require written acknowledgment. Receipts also provide proof if the IRS takes a particular interest in your tax return. A little forethought and immaculate record keeping can save you a headache down the line.

Most charitable organizations ask if you would like a receipt when you drop off donations. The receipt should include the name of the organization, a description, and an estimated amount of donated items. The Goodwill even provides a valuation guide online to help you calculate the total value of your donation.

For larger donations, you should request a statement from the charitable organization. It should include a description, estimated amount, and whether you received any goods or services from the donation. The last point is of note since you can only deduct the contribution, less the value you received. For example, if you donate $500 to a local arts program and you receive concert tickets valued at $100, you must deduct the ticket value from your donation.

Donating your unwanted items and charitable contributions is a great way to give back to the less fortunate and claim tax benefits. Before you make a drop off in the donation bin, ask your financial advisor about writing off your charitable donations for tax benefits on this year’s return.

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What you Should Know Before Renting out your Home

Renting out your Home

Real estate investments are a great way to diversify your portfolio. However, purchasing rental properties is beyond the budget for many people. What if there was a way to make money without the expense of a second property? Nowadays, you can make extra income by renting out your home. Some homeowners choose to rent out their entire home and downsize to simpler accommodations. Another option is renting out single rooms in your home and hosting guests through sites like Airbnb and Flipkey. Before listing your property, here are some important considerations about renting out your home.

Know the Market Demands

The first thing to consider is your home’s rental appeal. Just because you have the space doesn’t automatically mean people will want to pay for it. It’s important to know the real estate demands in your location to determine if renting out your home will be profitable in the long run. If the demand is low, it will be difficult to find renters.

The second consideration should be curb appeal. A little research will give you a better idea of what features are appealing to potential tenants. Compare your property to others in the neighborhood to see if your home would be an attractive option. You will need to complete all home repairs and should consider other small updates that can add value to your home. First impressions are lasting, so be sure that your home is memorable for all the right reasons.

The Finances of Renting out your Home

Your first financial question will be how much to charge your renters. Knowing the local real estate market will give you a clearer idea of rates. You can start by comparing your property to similar homes in your neighborhood. Be sure to set a price that will cover any additional expenses and keep you in the black each month.

The whole point of renting out your home is to bring in more income. However, any savvy investor will tell you that you must spend money to make money. Transforming your home into a rental property takes time, investment, and attention to detail. Home repairs and property management can be both pricey and unexpected. Before listing your property, assess how much work and the approximate costs of what needs to be done.

If you decide your home is ready for the real estate market, the next step is to get the word out. The advertising strategy depends on whether you are renting a single room, an entire property, or looking for long-term renters. Rental sites offer a wide range of options in accommodations and let you have a look at the competition in your area. Some  websites require a membership fee while others take a percentage after booking. Many homeowners choose to hire a professional property management company to handle the advertising and daily details. Choose the best option that keeps you under budget. The last thing you want is to drive yourself into debt before you begin.

The Legal Aspects of Renting your Home

Before you take the plunge into the real estate market, you should also consider the legal aspects of renting out your home. Each state has specific laws regulating rental properties and reporting of additional earned income. It’s wise to contact the City Housing Administration and a Certified Public Accountant to ensure you are complying with all state and federal laws.

You should also familiarize yourself with the Residential Tenancy Act so you understand both the property owner’s obligations and tenants’ rights. Draw up a rental agreement that outlines the rules, security deposits, rent collection, repairs, fines, terminations, and agreement to inspection. There are lease templates available online, but it’s smart to consult with a lawyer.

Notify your insurance company as well to update your policy and make sure the property is covered. Gaps in the coverage could leave you vulnerable in case of an accident. Knowledge and full compliance with the laws will keep you and your investments safe against severe fines or legal claims.

Taking the Leap

There are a lot of financial, legal and personal considerations when you decide to rent out your home. It is not something that should be taken lightly. Learn what it takes to manage an investment property and turn a profit. If your pro list outweighs the cons, then it’s time to get out there and start making money by renting out your home!


Renting out your Home

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