Do I need an LLC or can I start as sole proprietorship?


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I want to start a business with no employee or brick and mortar, nor offices, just online e-commerce for products i design, but my first 6 -12 months will be just dedicated to prototyping and manufacturing before selling anything to the public. I wan tot deduct all prototyping expenses (I estimate thousands $$). Do I need to be an LLC right away or can i wait?

LLC Sole Proprietorship

asked Jan 18 '17 at 18:01
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1 Answer


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Hi Francesco -- your profile says you're in the US so I'll answer from that perspective.

Caveat: I'm not an accountant and you should take this as a general point-in-a-direction and consult a professional where possible.

1) You can deduct business expenses as a sole proprietor so don't let that stop you from keeping things simple. If the expenses you plan to claim are greater than the standard deduction, you can use that to reduce your overall tax obligation without spending money to incorporate (LLCs can range from $99-$500 depending on where you go). In saying that, you want to abide by the general rule of not co-mingling funds. You can usually set up a separate bank account merely by filing an Assumed Name (aka Doing Business As or DBA) with your county clerk office as a sole proprietor. E.g. Francesco Bertelli can do business as Bertelli Enterprises (with corresponding business account) with a basic $10-$25 (depending on locale) filing.

https://www.dos.ny.gov/corps/assdnmins.html

Examples of typical self-employed deductions taken:

http://mashable.com/2012/03/15/self-employed-tax-deductions

https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/Tax-Tips-for-Sole-Proprietors/INF22258.html

2) That said, LLCs do allow for a reduction of tax burden. However, this is generally once you have revenues in the six figures. Source: http://sba.thehartford.com/finance/10-ways-for-small-business-owners-to-save-on-taxes

Given that you're in prototype phase, I'd use this first year (assuming 2017) to track your expense and use them to reduce your personal tax burden.

answered Jan 19 '17 at 00:58
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Chris Davis
41 points

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LLC Sole Proprietorship