I curently work as a DJ for one bar and do computer repair outside of my normal job. I have been for tax purposes reporting the money I get for both types of work as income. It is at this point where I am considering getting a business name for the computer repair side.
I know what I have to do in my county to get a business licence but I have some questions
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Believe if I open an business as an LLC, I have to treat myself as an employee of said business and withhold Unemployment, Social Security, Medicare, Federal and State taxes from the money I recieve and I get limited liability if the coomputer catches on fire, or I lose all their data
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If I file as a sole proprietorship I can treat all the money as personal income when I file my return and don’t have to worry about Unemployment, Social Security, and Medicare taxes but I am 100% on the hook if I get sued
The reasons I want to have an “official” business is so I can apply for business credit, open a business checking account, write off business expenses (music for the DJ business, time donated fixing systems for non-profits) and I can not do this without having an “offical” business.
Do I understand everything or am I confused?
As far as Social Security & Medicare, a sole proprietor pays the whole 15.3% (where in an employment situation the employer and employee each pay 7.65%).
My state doesn’t require a sole proprietor to pay Unemployment, and I imagine it doesn’t provide Unemplyment benefits for sole proprietors.
I don’t know anything about LLC’s, so I don’t know how they compare to sole proprietorships. I do know that establishing a sole proprietorship is simple. There are any number of books, government pamphlets, and surely internet sites that compare and contrast the different options.
Oh yeah – whereas an employee pays tax withholding on a per paycheck basis, a sole proprietor pays estimated taxes several times during the year. It’s going to be different in form depending upon which way you go, but either way you’re still liable for the same basic taxes and timely payment thereof.
Either paying 15.3% at once as a sole prop or paying 7.65% each as the employer and employee it comes out the same. I believe I can avoid paying into Unemployment if I do not have any employees other than myself but I will check at work since thats who I work for.
The amounts of money now are small but I’d like to turn the computer repair and support into a full time business down the line.