Should I create an LLC?

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volley
Posts: 24
Joined: Mon Feb 18, 2019 7:31 pm

Should I create an LLC?

Post by volley »

Hello,

I do some career consulting/volleyball coaching outside of my 9-5. I was wondering if I should package these two up and form an LLC to help write off expenses relating to work from home (i.e internet) and my car (travel to practice, gas, insurance, etc.)? I'm intrigued by the fact that I've seen other LLC owners write off the smallest of things like business lunches.

The main problem I have is that I will probably make about $2,000 for the entire year. So is the LLC even worth it if my expenses (which I am trying to write off) will always be much higher than my income?
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JD Leonard
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Re: Should I create an LLC?

Post by JD Leonard »

You don't need an LLC to deduct legitimate business expenses. Are you already filling Schedule C?
jebmke
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Re: Should I create an LLC?

Post by jebmke »

Travel to practice would likely be considered commuting expense and not be deductible.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Topic Author
volley
Posts: 24
Joined: Mon Feb 18, 2019 7:31 pm

Re: Should I create an LLC?

Post by volley »

JD Leonard wrote: Sun Jan 23, 2022 11:55 pm You don't need an LLC to deduct legitimate business expenses. Are you already filling Schedule C?
Currently doing the bare minimum aka getting paid through Venmo.
jebmke
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Re: Should I create an LLC?

Post by jebmke »

volley wrote: Mon Jan 24, 2022 10:54 am
JD Leonard wrote: Sun Jan 23, 2022 11:55 pm You don't need an LLC to deduct legitimate business expenses. Are you already filling Schedule C?
Currently doing the bare minimum aka getting paid through Venmo.
still need to file Schedule C
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
tj
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Re: Should I create an LLC?

Post by tj »

Are you suggesting that you would not have home internet if you were not a volleyball coach?

You don't get to turn personal expenses into business expenses just because you create a LLC (besides, LLC's don't even exist at the federal level - it's a state recognized thing)

You would have to allocate the business and personal use of your internet usage, if you are a very part time volleyball coach, I doubt there is a signification portion of internet usage that would be related to a business.

Further, you say that expenses greatly outweigh income, if you are not attempting to make a profit with this activity, this could be determined to be a hobby and hobby expenses are not deductible (but hobby income is still supposed to be declared)

If the $$ is small, you can probably get away with just not reporting anything like it sounds like you have been doing.

But in terms of expenses, if you would be incurring the expense anyway, odds are it's not primarily a business expense, and spending even more money on legal fees "to deduct it" makes no sense at all.
jebmke
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Re: Should I create an LLC?

Post by jebmke »

tj wrote: Mon Jan 24, 2022 12:32 pm If the $$ is small, you can probably get away with just not reporting anything like it sounds like you have been doing.
You have to report the income and any legitimate expenses. Some things (like earned income credit, for example) are based on net earned income so even reporting revenue but not expenses is not correct if it results in an advantage to the taxpayer.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
tj
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Re: Should I create an LLC?

Post by tj »

jebmke wrote: Mon Jan 24, 2022 12:35 pm
tj wrote: Mon Jan 24, 2022 12:32 pm If the $$ is small, you can probably get away with just not reporting anything like it sounds like you have been doing.
You have to report the income and any legitimate expenses. Some things (like earned income credit, for example) are based on net earned income so even reporting revenue but not expenses is not correct if it results in an advantage to the taxpayer.
Hobby expenses are no longer deductible with TCJA.

Hobby income is supposed to be reported as other income.

You don't get to decide if it's a hobby or business, the circumstances dictate it, how you operate the activity.


If you legitimately report hobby income and it increases your EITC, you are in the clear.


Most bogleheads won't be eligible for EITC due to investment income though.
Admiral
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Re: Should I create an LLC?

Post by Admiral »

Just create a sole proprietorship. Use Schedule C. QBI may be applicable but it depends on the business. Coaching may not count, but the rules are a little opaque so best to hire an accountant.

You can deduct most things if you have a home office, the percentage is based on square footage. Despite what a poster upthread wrote, you can indeed deduct internet usage. You just make a reasonable estimate of business usage and cost. If you were ever audited (highly unlikely today) you might need some documentation (aside from just the cable bill). Yes, you can deduct travel miles if it's for a legitimate business purpose.

You do not need an LLC in my opinion.

ETA: Also, again contrary to what is upthread, many businesses show a loss some years. Nothing illegal or improper about it. If you have a going concern, attempt to make money, and some years expenses exceed income that is perfectly legitimate. Losses can also be carried forward.
jebmke
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Re: Should I create an LLC?

Post by jebmke »

tj wrote: Mon Jan 24, 2022 12:45 pm
jebmke wrote: Mon Jan 24, 2022 12:35 pm
tj wrote: Mon Jan 24, 2022 12:32 pm If the $$ is small, you can probably get away with just not reporting anything like it sounds like you have been doing.
You have to report the income and any legitimate expenses. Some things (like earned income credit, for example) are based on net earned income so even reporting revenue but not expenses is not correct if it results in an advantage to the taxpayer.
Hobby expenses are no longer deductible with TCJA.

Hobby income is supposed to be reported as other income.

You don't get to decide if it's a hobby or business, the circumstances dictate it, how you operate the activity.


If you legitimately report hobby income and it increases your EITC, you are in the clear.


Most bogleheads won't be eligible for EITC due to investment income though.
Right - it is either Hobby or not.

I understand the EITC point but Schedule C affects other things as well (like IRA contribution eligibility).

My point is, if you file Schedule C for the Gross Income you can't elect to ignore legit expenses if that generates a benefit to you.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
tj
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Joined: Wed Dec 23, 2009 11:10 pm

Re: Should I create an LLC?

Post by tj »

Admiral wrote: Mon Jan 24, 2022 12:50 pm Just create a sole proprietorship. Use Schedule C. QBI may be applicable but it depends on the business. Coaching may not count, but the rules are a little opaque so best to hire an accountant.

You can deduct most things if you have a home office, the percentage is based on square footage. Despite what a poster upthread wrote, you can indeed deduct internet usage. You just make a reasonable estimate of business usage and cost. If you were ever audited (highly unlikely today) you might need some documentation (aside from just the cable bill). Yes, you can deduct travel miles if it's for a legitimate business purpose.

You do not need an LLC in my opinion.

ETA: Also, again contrary to what is upthread, many businesses show a loss some years. Nothing illegal or improper about it. If you have a going concern, attempt to make money, and some years expenses exceed income that is perfectly legitimate. Losses can also be carried forward.
If you do go the home office route - which needs to be a room dedicated to business use only - you will have to pay depreciation recapture when you sell the house for the business portion of the home, even if you never depreciated it in the first place, because you were entitled to the depreciation for the business use.

I never said businesses can't show a loss, I said that you have to attempt to make a profit.

The OP stated "So is the LLC even worth it if my expenses (which I am trying to write off) will always be much higher than my income?"

If OP already knows that the expenses will always be much higher than the income every year, how can you call this a legitimate business?

Nobody who is trying to make a profit will continue to throw expenses on something year after year that is not successful. Any IRS agent who looks at that return will wonder if that person is just trying to offset income from their full time job.

It definitely sounds like a hobby that the OP happens to get some revenue from based on the facts provided so far.
Admiral
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Re: Should I create an LLC?

Post by Admiral »

tj wrote: Mon Jan 24, 2022 1:49 pm
Admiral wrote: Mon Jan 24, 2022 12:50 pm Just create a sole proprietorship. Use Schedule C. QBI may be applicable but it depends on the business. Coaching may not count, but the rules are a little opaque so best to hire an accountant.

You can deduct most things if you have a home office, the percentage is based on square footage. Despite what a poster upthread wrote, you can indeed deduct internet usage. You just make a reasonable estimate of business usage and cost. If you were ever audited (highly unlikely today) you might need some documentation (aside from just the cable bill). Yes, you can deduct travel miles if it's for a legitimate business purpose.

You do not need an LLC in my opinion.

ETA: Also, again contrary to what is upthread, many businesses show a loss some years. Nothing illegal or improper about it. If you have a going concern, attempt to make money, and some years expenses exceed income that is perfectly legitimate. Losses can also be carried forward.
If you do go the home office route - which needs to be a room dedicated to business use only - you will have to pay depreciation recapture when you sell the house for the business portion of the home, even if you never depreciated it in the first place, because you were entitled to the depreciation for the business use.

I never said businesses can't show a loss, I said that you have to attempt to make a profit.

The OP stated "So is the LLC even worth it if my expenses (which I am trying to write off) will always be much higher than my income?"

If OP already knows that the expenses will always be much higher than the income every year, how can you call this a legitimate business?

Nobody who is trying to make a profit will continue to throw expenses on something year after year that is not successful. Any IRS agent who looks at that return will wonder if that person is just trying to offset income from their full time job.

It definitely sounds like a hobby that the OP happens to get some revenue from based on the facts provided so far.
True, yes, I'm not sure why the OP thinks the business will never make money. If you claim zero expenses one year then voila, money is made. I agree that the sole purpose can't be just to write off losses forever. Hard to know why the OP would do this if it was money losing. Sounds more like volunteerism.
tj
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Re: Should I create an LLC?

Post by tj »

jebmke wrote: Mon Jan 24, 2022 12:54 pm
tj wrote: Mon Jan 24, 2022 12:45 pm
jebmke wrote: Mon Jan 24, 2022 12:35 pm
tj wrote: Mon Jan 24, 2022 12:32 pm If the $$ is small, you can probably get away with just not reporting anything like it sounds like you have been doing.
You have to report the income and any legitimate expenses. Some things (like earned income credit, for example) are based on net earned income so even reporting revenue but not expenses is not correct if it results in an advantage to the taxpayer.
Hobby expenses are no longer deductible with TCJA.

Hobby income is supposed to be reported as other income.

You don't get to decide if it's a hobby or business, the circumstances dictate it, how you operate the activity.


If you legitimately report hobby income and it increases your EITC, you are in the clear.


Most bogleheads won't be eligible for EITC due to investment income though.
Right - it is either Hobby or not.

I understand the EITC point but Schedule C affects other things as well (like IRA contribution eligibility).

My point is, if you file Schedule C for the Gross Income you can't elect to ignore legit expenses if that generates a benefit to you.
I mean...you can. You just potentially risk getting audited for a fraudulent sham business. I'm sure there are some businesses that exist that don't have much in the way of operating costs.
jebmke
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Location: Delmarva Peninsula

Re: Should I create an LLC?

Post by jebmke »

tj wrote: Mon Jan 24, 2022 2:02 pm I mean...you can.
Much of the return is on the honor system so I don't view Schedule C as anything special.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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