Simple time tracking that syncs with payroll.
If you choose to be a sole proprietorship, you don’t have to do anything other than work for yourself. There are no fees or rules to become one (though there are requirements if you decide to hire employees). Because you and your business are treated as one and the same, the downside is your personal assets are at risk if your business runs into financial trouble.
Alternatively, if you want some more protection, you might choose to form a single-member limited liability corporation, which is an LLC with one owner.
You get to have “LLC” in your business name, and as the name states, it protects your personal assets and limits your liability against lawsuits and creditors.
But those benefits come with a downside: LLCs have to pay to be registered with your state, are subject to governing laws, and may have to pay annual registration fees.
How do I pay myself from my LLC?
As the owner of a single-member LLC, you don’t get paid a salary or wages.
Instead, you pay yourself by taking money out of the LLC’s profits as needed.
That’s called an owner’s draw. You can simply write yourself a check or transfer the money from your LLC’s bank account to your personal bank account. Easy as that!
How am I taxed as the owner of a single-member LLC?
The IRS treats single-member LLCs as sole proprietorships by default, which means your LLC will been seen as a “disregarded entity.” So instead of the LLC paying income tax, its profits and losses are passed on to you.
In other words, you don’t need to file a separate federal tax return for the LLC. As the sole owner, you’ll report all of your LLC income on your personal federal tax return. Your state, however, may have tax filing requirements for LLCs, so make sure to check your state’s rules.
If you prefer, you can choose for your LLC to be taxed as a corporation. If you do that, you’ll be considered an employee, and you may be required to pay yourself through payroll.
Taking this route can reduce your self-employment taxes, but it can also result in more paperwork at tax time and may have other tax consequences, so be sure to talk through the pros and cons with your accountant first.