What’s the difference between a sole proprietorship and an LLC?

February 24th, 2014 → 1:59 pm @ // One Comment

HousewithFence

I am making goals for 2014 and working on my business is one of my goals. My hubby says I should do a LLC. Right now it’s a sole proprietorship. Can you help me understand the difference and tell me which is better? Thanks for your help.

-Lee Ann in Indiana

Limited Liability Company (LLC) status is granted by your state to limit your liability from a lawsuit to your business assets. LLC is a legal status. Sole proprietorship is a tax status from the IRS.

Think of your sole proprietorship business as a single family house. It has one owner. Pretty simple. LLC status is like a fence around that house, protecting it.

You must protect your LLC status for it to protect your assets. Here are some tips:

  • Set up a separate checking account for your business. IOW, do not mix personal and business monies. It’s like punching a hole in your fence!
  • Avoid treating business assets as your own.
  • Avoid personal guarantees on business loans.
  • Purchase professional liability insurance.

Finally, it goes without saying, but don’t commit fraud. Even LLC status can’t protect you if you’re a crook!

In my book Business Tips and Taxes for Writers, I devote a chapter to LLC status. You can read the chapter here http://taxesforwriters.com/book/.

WritersMarket2014Cover

 

Also, in the 2014 edition of Writers Market  is an article I wrote titled “Should My Writing Business be an LLC?” You can order a copy here.

 

 

I hope that helps!

Carol Topp, CPA


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One Comment → “What’s the difference between a sole proprietorship and an LLC?”

  1. […] “What’s the difference between a sole proprietorship and an LLC?“- This is not my first post that talks about an LLC, but the previous post was from a lawyer’s perspective. This post is from an accountant’s perspective. When you put the two perspectives together you get a more complete answer. I also like that she directs you to two additional resources that offer a more in-depth explanation. Here are a few other LLC related posts on her blog: “LLC: Yes or No?,” ”Should You Incorporate Your Business,” and “Business Tip #16 for Writers: Sole Proprietorship.” […]

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