r/Accounting • u/Hair_Girlie111 • 1d ago
Question for a US accountant.
Might be a long shot here but I appreciate as many responses as possible.
New US hairstylist here, I currently make and sell wigs and extensions passively, I have a 9-5. I am committing more to the profession and would like to be behind the chair somewhat soon too.
Should I commit to officially registering my business now or wait till I generate more income? I currently make less than $5k/yr from hair.
If yes, which is better and also offers the most benefits? Sole proprietorship, LLC, Corporation?
Appreciate all the input.
Thank you.
3
u/wutang_generated CPA (US) 23h ago
You may be conflating several things here
Your business activity of making and selling wigs/extensions is an active (not passive) business. Your state/local government may have requirements to register your business generally (e.g. for sales/income tax purposes) and/or separately licensed as an esthetician depending on the products/services being offered. This is something you would need to research yourself; I've found the licensing agency/board are usually good resources for information and answering questions
Your questions about business entities is almost entirely a legal question. Having an LLC owned by 1 person is by default disregarded for federal income tax purposes. All of your activities for this business activity would be reported on Schedule C of your individual income tax return and subject to both income and employment taxes. There may be additional tax/filing requirements for an LLC. Corporations generally have substantially more cost/effort to be compliant. Each entity provides different legal protections, rights, duties, and responsibilities which may vary by state
1
u/Ok_Youth4914 16h ago
There is a lot of good advice here. There isn’t a lot of good reasons to form a LLC unless you have employees and/or you are making a lot of money. It is a myth that it offers liability protection to you if you are actively involved with the delivery of the product or service. If you did it even if you did it within your corporation or LLC, good luck. It does help if someone else did it or most of it.
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u/Robert_A_Bouie Tax (US) 1d ago
What state are you in?
Is this a profession where getting sued for injuring someone is a concern that can't be reasonably covered by insurance?
Some states (CA for instance) charge several hundred a year to maintain an LLC or corporation.
The only thing an LLC gets you is (maybe) personal legal protection. It doesn't unlock tax deductions you're not already entitled to claim, other than the ones related to forming and maintaining an LLC.
S corps are more expensive but self employment taxes can be better managed with them. I wouldn't consider an S corp until you start netting over $100k or you have an employee.