What’s the difference between a sole proprietorship and an LLC?
February 24th, 2014 → 1:59 pm @ Carol
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 https://taxesforwriters.com/book/.
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
Tax Deductions and other IRS Matters for Authors | WD Ghostwriting Services
10 years ago
[…] “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.” […]