Incorporating IT service consultant work under an LLC


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I have a small number of clients for whom I provide IT and website hosting services on a recurring basis (all side-work). While I'm still just breaking even due to hardware/cloud expenses at the moment, I want to continue growing my clientele. In order to do that, I need to start using my own payment gateway/merchant account tied to business accounts et al., but I can't decide if the time it takes to create and maintain an LLC is worth it (compared to a DBA).

What are the best reasons to either incorporate or not incorporate while working as an IT consultant (particularly as it applies to independent website hosting)?

LLC Incorporation Consulting California

asked Jun 19 '12 at 03:00
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Matt Beckman
132 points
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1 Answer


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I've written a couple of related answers already. Take a look at this one and this one.

Generally, the benefit of incorporating or forming LLC is limited liability, i.e.: you personally will not be liable for business debts (if managing the business appropriately of course). There are significant taxation implications though that you should familiarize yourself with.

In California LLC's pay $800 yearly franchise tax and LLC fee (income tax) based on your gross receipts of $250K or more. Corporations are exempt from the $800 fee for the first year, and pay corporate taxes (both S and C pay income taxes, at different rates and different terms).

For Federal tax purposes, LLC is either a disregarded entity (all your business taxes reported on Schedule C or as a partnership if its not a signle-member LLC) or a corporation (you can choose to be taxed as a corporation, and if qualify - S-Corp). Corporations are taxed at higher rates, and have the problem of double taxation and re-characterization of income (unless it's S-Corp).

You should get a qualified tax and legal advice. My answer is not such an advice. This answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.

answered Jun 19 '12 at 04:38
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Littleadv
5,090 points
  • Thanks. I didn't think the cost of an LLC was that high. With the limited scope of my clientele, I've decided against it, and I'll be moving forward with just the DBA + consulting contracts. – Matt Beckman 8 years ago

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LLC Incorporation Consulting California