3 Reasons You Need an LLC
Did you know there are three key reasons why you need an LLC for your online business?
Reason #1: Protection of Personal Assets
The first reason why you need an LLC for your online business is for protection of your personal assets. This could be your home, your vehicles, your retirement, and anything else that you have, it could even be an investment or an asset. This can even be future earnings and future assets, such as buying a home in the future. Why? An LLC keeps a business separate from your personal. So if there is a complaint and your LLC is set up correctly, if somebody wants to sue you or you have to go before a judge or have some type of negotiation going on, your personal assets and future earnings are protected. Your business is its own thing. It's its own entity. And you are telling the world that your business is not part of your personal identity. It's your personal assets. So this protects you in that way.
Reason #2: Protect Your Business Assets
The second reason is to protect your business assets, similar to your personal assets being separate from your business assets. If something happens in your personal life, they cannot go after your business assets.
Here's a key example where I see this happen a lot. Let's say you start an online business, and you're making some decent money. It could be as an Etsy seller, you could be an online coach, but things are going well and you're excited for the future. Now, let's say that something bad happens and you get in a car accident. Well, it might be minor–but the other person doesn't think it's minor and they claim that you're at fault. Now they want you to pay up. Well, you're thinking–wait a minute, that's what I have insurance for. Right? Not so fast. Insurance might cover it. But let's say it doesn't. Let's say this goes above and beyond and these people Google you. They find out you’ve got a business and decide “let's go after her.” They look at your business, and they see what you've got. Then they are ready to make a claim for more money.
I wish I could tell you this doesn't happen. But it does all the time. So now all of a sudden you have this claim against your business assets, and your personal assets all into one. Why? Because you've never formed the LLC. Now, if you don’t have LLC protection, and you get into an accident in your personal life, they can come after your business. And the kicker is when things are commingled like this, (where you don't have a separate LLC set up), they could even go after the future earnings of your business down the road. Let's say you're just getting momentum, and you're excited for what's to come. And you can see down the road the success that is laid before you and you are just in awe of what your business is becoming, you don't want that to go away. And that can be a very real possibility without an LLC.
Accidents happen. So it's important to have protections set up now, so you don't pay the prices for those accidents later.
Reason #3: Taxes
The third reason why you need an LLC for your online business: taxes. Nobody likes to talk about taxes, but they're real. It’s true when they say taxes are guaranteed–we all have to pay them. If you’re making a lot or a little bit, the IRS they want their cut. Here's what you can do about taxes in an LLC.
When you have an LLC, you have a lot more flexibility for tax purposes. You can title things in your LLC instead of your personal name, you can change your LLC elections, you can hire– there's just a lot more flexibility as to how things work when you have an LLC set up for tax advantages. And a key point of these advantages that many people don't want to talk about is that scary word called an “audit.” Let's say that the IRS doesn't take you seriously. Or let's say they get your returns and they say something just isn't lining up here. If you have an LLC set up for your business, that audit on your business is going to stay on your business. If you don't have that setup and you are working just out of your name, that audit is going to go through all your personal records. I don't know about you, but when it comes to my business, it's a little easier if it’s separate from me personally, a little less stressful. It's easier to hire people or to have my bookkeeper handle it. But if it's me personally, can you even imagine have an account for every manicure, pair of shoes, every little thing you've paid for–that tuition at your kids school? Those new Nikes you bought them for back to school? No, thank you. It's so much easier to keep everything separate and then you can give the IRS what they need for that entity.
Well, there you go! That's the three key reasons why you need an LLC for your online business. If we can be of any help in getting your LLC setup, reach out and let us know!
