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I am contemplating using some of my free time to make extra cash doing random IT side work. I want to protect myself from liability and be sure to cross my t’s and dot my i’s when it comes to taxes. So my question is, do I need an LLC to do this? Or can I to have a lawyer draw up a contract releasing me from any liability and claim taxes on my personal return?

37 Spice ups
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Depends on how much work you plan to do. If you think it might develop into something go with the LLC, but if you’re talking about smallish jobs here and there then you can just do a DBA. I have a friend and frequent “customer” who is a CPA and he does my taxes for me, he recommended against the LLC. Tax wise for a Corporation you have to show a profit every so many years and it just made more sense to write of my expenses personally and report the income earned on my personal taxes.

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Yes, but without being a CORP, you can be sued against your personal assets and a CORP prevents that from happening.

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Been thinking about it myself, but I don’t know much about the law part.

I’d like to open an LLC, but I dont have much spare money for a lawyer, and neither can I come up with a good name lol.

I always ear it’s ‘really easy’ to open your own LLC, but again, taxes and Laws… no clue.

Being German and from Germany, I’m totally lost with all that stuff here.

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I run a side business here in the good old USA. I started as a DBA, obtained a retail license (I sell software/hardware and do services), obtained a resellers permit (so I don’t pay tax to purchase items). At first I kept a folder for each month, all invoices & expenses. I dumped it into a spreadsheet each month to figure out how much I made or lost. The first year for taxes I brought it to all to my accountant. Since I had a profit, I owed taxes, so I paid that. Then he set me up on quarterly taxes based on last years profit. I then eventually opened up a business bank account and turned it into a LLC. Turning it into a LLC was super easy – just a form with my local State and a letter. Didn’t cost anything. I’ve know graduated into using QuickBooks, but a simple spreadsheet is enough for most people.

If you starting small, just make up a business name, file the paperwork with your state (Use your Google Fu skills!), and there you go. Basically save 1/3 of what you make for taxes, and you’ll be fine the first year.

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You should, if for anything to protect yourself and your assets. You never know about people, specially when it comes to their PC’s.

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Are you in an industry that’s litigious?

No, you don’t NEED an LLC. You do need a tax ID and you do need to have separate accounts that you use for your business so you can easily show profits and losses

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This was discussed the other day -  http://community.spiceworks.com/topic/812242-do-i-need-to-register-a-business-to-provide-it-services-as-part-time?page=1#entry-4345788

Your own circumstances are likely different - But here is my take on it from a risk perspective (Taken from above thread):

The law where I am in Ontario Canada & in the UK is as follows: when you incorporate you still have risk yes - but your exposure to risk is very much limited.

Why?

A corporation is a totally separate legal entity and as such, a person can not be incorporated - this is how it helps protect one’s assets as the people who are looking for compensation sue the corporation - not the individual.

A corporation requires 1 registered director who has limited liability and one other person for taking the minutes who has NO liability (Typically a lawyer for small corps) - each director listed on the articles of incorporation assume a small chunk of liability, but this is limited by law (depending one where you live, amounts may vary).

Let’s say Joe Blogs is a registered director of XCorp and they are being sued by ACME Inc. Joe Blogs as a registered director may have liability / blame assigned to him depending on the circumstances.

If ACME Sues XCorp for $5m, but Joe Blogs is only liable for $10k, all Joe Blogs has to pay is $10k. Joe get’s to keep everything apart from the $10k he is legally liable for.

Even if XCorp only has $3m in assets and cash leaving a $2m hole - Joe Blogs is still only liable for $10k. The firm would file for bankruptcy - but the key is the directors keep what they own.

With a SP - ACME Inc would be suing Joe Blogs as he works for his self.

Even with Insurance, if you have a policy that covers you for $1m for something like negligence - but your customer ACME Inc is suing you for $1.5m - you as the SP will have to cough up $500k - if you can’t the court can / will take all your assets to cover the missing amount and if you still owe money you will have to file for bankruptcy or the order will be placed on you by the court.

I do not know the in’s and out’s of the laws in your area - but in general - where I live and where I am from, that is how it works.

But again - seek legal council to make sure you are making the best and most informed decision for your locality.

Doing business is dirty - having a great team behind you is essential!!

Cover all bases!! :slight_smile:

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You don’t have to, but is it a good idea? Yes!

You’re typically dealing with peoples data when doing these jobs If that data gets lost, has some value to the user/company and they go after you because they think its your fault…

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What should I do for my non-legit sidework?

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Independent Contractor will work just fine. :smiley:

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Wear gloves and have a good alibi.

:slight_smile:

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I personally went back and forth with this decision myself several years ago as I was doing more and more side work. With doing bigger jobs came bigger liability and being a LLC protects your personal assets in case the unimaginable happens. I personally decided to create my own LLC. It was pretty simple and it actually helps get better side jobs as people see you as more professional and helps cultivate a business relationship. just my experience though.

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Selling weed? :wink: j/k

I’m not going to ask for you to define other “non-legit” sidework.

As for DBA vs LLC, etc. A lot of things have changed over the years, I have always done a DBA however, I also don’t do much work outside of my normal job (we’re talking minimal at best). ::pulls up rocking chair:: back in the day, depending on your business and more specifically what you are doing, your exposure could be significant. If you’re doing minor repairs, cleaning out systems, replacing memory etc, then it becomes personal choice.

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Check with your local Secretary of State. In California, I pay $800/yr for an LLC (non-IT-related) so if you’ll have to pay registration fees and aren’t doing that much side work, it may not be worth it.

An LLC shouldn’t have an effect tax-wise. The profits just pass through and you report them on your regular individual tax return.

The big benefit of an LLC is protection of your personal assets should you get sued. There is insurance you can get that would, for example, be less expensive than $800/yr, if that’s all you’re worried about.

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ETA: Regarding being clueless about starting an LLC, just go to your state’s Secretary of State (SoS) site and they’ll have a Corporations link where you can download the forms. I don’t know if every state is the same, but I first had to mail in (couldn’t do it online, though some states allow it) a request for a name search with three possible names. When that came back, I just downloaded the LLC registration form, filled it out, and mailed it back, along with a check for $70.

Once that comes back you go back to the SoS site and fill out the Statement of Information page, and mail that back, along with a check for $20.

If you’re going to have employees, you’ll need to get an employer tax ID (you can get one online at the IRS web site).

It’s kind of like a colong exam: daunting at first, but once you’re done you say, “that wasn’t so bad.” (Or so I’m told.)

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contracts are cool and protect you most of the time, but an LLC means that anything that you CAN be sued for would be restricted to the business and not bleed into your personal savings. So, if youre worried about legal issues spend a few bucks and make yourself an LLC, having contracts on top of that is probably wise as well. personally i dont bother with either but all my side work is generally residential anyways.

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With all the varying ideas/points above as an example, I think you should really consult a tax professional experienced with helping small businesses in your state. They should be able to layout the advantages/disadvantages of each and advise you on any other questions you may have.

My wife runs her own business as an LLC and the advice from our tax professional was and has been invaluable over the years.

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I just had a new prospective client ask me if I could provide a signed NDA. That’s a first in my 15 years, but he does have a background in government accounting.

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As others have said, an LLC is a Limited Liability Company.Really, it is a way to protect yourself if you should do your clients harm. Although not really necessary, sure handy if you were to lose someone’s critical data or burn their house down. I seems that LLC’s have different costs in each state. In Oregon, I paid about $100 per year. I see California charges $700 per year and other states are free. The Secretary of State’s website should have all that stuff for your state.

You don’t need an attorney or even a CPA to set one up, although a CPA can answer a lot of questions in general. Attorneys - well…they are attorneys. Necessary at times, just like an enema. It’s a slam dunk to get set up on the SoS website. Your tax liability shouldn’t really be dependent on having an LLC. Legally, if you make money, Uncle Sam wants his share.

Good luck.

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