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LLC versus Sol Proprietor

LLC versus Sole Proprietor -

I have strong feelings about this topic. Personally, I always recommend setting up an LLC, mainly for two reasons that both relate to liability. When you're a Sole Proprietor, the IRS doesn't require you to obtain an EIN. Therefore, most people end up using their Social Security number as their Tax ID number.

Let's say you're selling something on Amazon and they ask you to fill out a W9. You will have to provide your name and Tax ID number, which in this case will be the same as your Social Security number. I don't know about you, but I wouldn't want Amazon to have my Social Security number if I can avoid it. It's a liability.

Secondly, when you're a Sole Proprietor, your business and personal assets are the same entity. If something goes wrong and you get sued, you risk losing your personal assets. Think of it like this: you have a pool in your backyard without a fence. Anyone can come and jump into your pool. If something happens, you could be held liable. An LLC is like adding a fence to your backyard—it reduces your liability tremendously.

I understand that Sole Proprietorship might be considered easier, but just because it's an option doesn't mean it's the best one. Some people might argue that setting up an LLC costs money. I looked up the minimum state tax for LLCs and found that California has the highest fee at $800 (not a big surprise), while most states charge less than $100. Some states have a fee of $300, and others don't charge at all.

I don't know about you but I would rather spend a little for the extra comfort in knowing I am doing everything I can to protect myself, my family, and my business.

What are your thoughts?



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