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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10173
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I'm starting a retail business in California. I already own

Customer Question

Hi - I'm starting a retail business in California. I already own another online business. It is also likely that I will start other businesses. I am currently a sole proprietor for the online business and want to incorporate for the new business. Would you recommend I create an LLC and then a DBA for the new business and possibly transfer(?) the existing business to a DBA under that LLC as well? Or what makes most sense here for tax and legal structure?
Many thanks.
Submitted: 4 months ago.
Category: Tax
Expert:  emc011075 replied 4 months ago.

HI. My name is ***** ***** I will be happy to help you.

Creating a single member LLC will not change anything about your taxes. Single member LLC is treated as disregarded entity for tax purposes, meaning it is taxed as sole proprietorship.

From legal point, however, LLC will give you limited liability protection from the creditors so your personal asset will be protected. LLC is a type of fusion between corporation and sole proprietorship.

Customer: replied 4 months ago.
Hi - yes, I understand the LLC difference and will be creating an LLC for the limited liability protection factor so my personal assets will be protected. My question however, was about DBA's and having more than one business - can you please answer this?
Expert:  emc011075 replied 4 months ago.

DBA only means "doing business as", it is not a legal structure. If you have more than one unrelated business, you will have more than one Schedule C. You have to separate your accounting, use separate bank accounts as possible.

Customer: replied 4 months ago.
I just want to know what makes the most sense for owning more than one business. An LLC "doing business as" the other entities, or what? Two or more LLC's? Do you understand my question?
Customer: replied 4 months ago.
Or rather, what is the most common filing/legal structure for this scenario?
Expert:  Lane replied 4 months ago.

Hi, My name's Lane - I can help here. I've been providing this kind of service for business owners for over 30 years.

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The ideal scenario is to have two separate LLC's. The reasoon for this is that it keeps each business insulated from the creditors, lawsuits and other liability issues of the other. It also separates that liabiity from you personally.

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If you don't have either a corporation or an LLC (set up with the secretary of state - all corporate law is state law) then you are personally liable ... and if you have only one LLC, you are personally liable for the other AND the business operation that's not in the "shell" of an LLC can affect both you and the other LLC.

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There's more to it than that (such as following the corporate law of your state and not comingling funds ... but again the ideal here is simply to set up two different LLC's.

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So again, the DBA only accomplishes a naming convention and serve's NO other purpose. Now, if you set up the BDA as being owned BY the LLC you will have pooled al of the liability in one LLC (so risk is not as segrated) but that works.

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... no different from a company setting up an additional service or product line, but NOT the best pracice ffrom a liability perspective.

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From a TAX perspective? it's a non-issue, both LLC's and sole proprietorships are pass-through's reported on schedule C. (IRS calls these dosregarded entities).

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One last point, if you are HIGHLY profitable, you may want to consider electing S-Corp taxation for the LLC or Corporation (S-Corp is not an entity thpe, ot's simpy a tax election ... there must be the underlying LLC or corporation).

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If you are profitable WELL above what would be considered a reasonable sallary (plus other expenses) the the S-COrp cna help to save on Social Security and Medicare Taxes (federal income taxes are still passed throigh just as with sole prop or LLC.

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let me know what questions you have from here

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Lane

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I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

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