Anyone know what are the benefits of registering as a business vs. registering as an individual especially when it comes to filing taxes? Thanks.
- Are you operating a business? I.E. Is this a warehouse/studio/office or is this a residence you’ve put up for rent?
1a. If a residence, do you rent it often? (more than once or twice a month) - Do you have a business license? (for work you do in the space as “home-based”)
If the answer is “no” to 1, 1a & 2, then no, don’t register as a business, it’s just extra expense and paperwork on your part.
If the answer is yes to 1 and/or 1a, then there is a decent chance you should register as a business.
If the answer is yes to 2, you should probably register the property as a business rather than use the existing license for a “home-based business” you’re currently operating with.
If renting a private residence out makes up a significant portion of your income (20% or more, and at least $10,000/year), then yes, you may want to register as a “sole proprietor” and get a tax ID from the IRS so you can expense a lot more than you would normally be allowed and get insurance for the business as a layer of protection (which you could then expense).
Other benefits include liability protection if you register as an LLC or corporation, but only if you have multiple members and only for personal property. If you signed the lease, for instance, you would still be personally liable for damages if sued. An LLC will also cost around $1000 the first year you register and at least $800/year thereafter, so really not worth it until you get to revenue in the $40,000/year range or higher, or you do something really dangerous with multiple business partners.
Hope that helps.
2 Likes