So you want to start a business in California!  Should you get an LLC?

Whether a full time job or a side hustle, the bug to start a business bites the eager and industrious at some point in life.  If they bug bites you, what do you need to know?

The best advice we can give is to ignore most of what you hear on social media.  The biggest thing we see we wish we could stop: starting an LLC because you think it is necessary or gives you extra tax breaks.  These are both not true.  In fact, it adds additional fees ($800 per year minimum to the State of CA if you are in CA), complexity to your return (a third set of forms for California, separate forms with separate filings in other states,) it requires registering and maintaining the beneficial ownership information (BOI) with the Financial Crimes Enforcement Network (FinCEN), and updating your Statement of Information with California at least bi-annually.  After all this, the LLC does little to actually help with liability protection if you are the only person in the organization.  If you really have a potential risk or something to lose, then insurance is your first and best line of defense.

 

Here are some things we can suggest:

  1. Contact your county to determine what you need to do to file a fictitious business name statement.  This is the only thing required to operate a business that is not under your own name.  If you want to run a bakery called Fluffy Muffy’s Muffins, for instance, that would require the fictitious business name (also called a d.b.a. which stands for “doing business as”).  But if your name is Susan Baker and you are operating the bakery as Susan Baker’s bakery, you do not need a fictitious business name.  Why? Because your actual name is in the business name.
  2. You will need to open a business bank account.  If you are using a business name other than your own you will need to provide the information from the county about your fictitious business name.  Any banker who says you need to be an LLC does not know what they are talking about.  Choose a different bank or talk to the supervisor. 
  3. Most cities or counties require a business license.  Check with your city and/or county to see what the requirements are for your area.
  4. The state of California requires most businesses to register with the California Department of Tax and Fee Administration (CDFTA.CA.GOV for more information).  This the agency that collects sales and use taxes.  Even if you do not think you sell anything, you might be surprised!  Photographers, artists, contractors and many other industries that seem like service industries still need to report and file sales and use tax returns.
  5. Consider get a tax ID number.  This is a number to use for your business that is not your own social security number.  You will use this number on Forms W9, a form businesses or landlords should request from you before they pay you.  You can get a tax ID (also known as an employer identification number (EIN) by filling out an SS4 online at irs.gov.
  6. You should also request a Form W9 from any vendor who is not a bank or corporation that you pay.  You will possibly need to send 1099s at the end of the year and will need this information.  This is another use for your EIN – it will show up on the document instead of your social security number. 
  7. Keep good business records!  You need receipts to show what you purchase, and you need bank or credit card statements to show you made the purchase.  Cash has not trail and is hard to prove for purchases – your deductions – so try to avoid using it.

 

We are happy to meet with you and discuss this further.  If you are starting big, additional considerations should also be made.  Employees, independent contractors, tax planning, bookkeeping, payroll, entity structure, retirement plans and more are all additional topics we can discuss!