So I’m starting to get back to showing more and I’m curious about the role of creating an LLC. Business wise I understand it allows you to separate work and home financially so no one can attack your other assets through a business…but why do some people who show create an LLC? And how would you go about doing that? I am meeting with a lawyer to speak about this but I want to have some background or more info before I march in there sounding silly.
Currently I work for a farm that is rather lower scale and I have been expanding the program very quickly. The riders are getting more advanced, we’re getting in some nicer horses, and we’re starting to show. The owners of the farm in order to keep me there are offering the possibility to create an LLC piggybacking off their business to create my own little show program. Fabulous opportunity but I don’t even know where to start. I’m an extremely young professional and this is really only my first year as a full fledged professional/head trainer. What’s a good place to start? Does anyone know of any good resources for me to take a look at?
A good place to start is the website for the Secretary of State in the state where you are located. You will need to register with the state by filing your articles of organization and have an operating agreement. From there, things vary. It also may depend on whether you are using your name in a single-member LLC or using a trade name. Some states require the trade names be registered separately.
Some amateurs have LLCs for various reasons, some of them being tax related if you opt to be taxed as a corporation. But it sounds like you are a professional. Whether part time or full time (but especially if part time and you have significant assets/income outside of your horse activities), you want an LLC to shield those assets and yourself from personal liability.
Find yourself an accountant - you need one anyway to do your taxes correctly, and this person will be able to help you decide if an LLC or other structure is right for you.
Some of the variables include the state you live in and your other assets.
In any case, I would strongly recommend having a separate checking account and a specific credit card that you use only for your business. This will make it much easier to track your income. When you need personal money, move it in chunks into your personal accounts, and if you can, you can plan a regular chunk once a month that you expect to cover your expenses.
You might also look into an app that will help scan receipts and track expenses as you go.
Basically, people who show professionally are a company. The service they provide is showing the horse. Thus, they have a business and run it through an LLC.
I don’t know the details of your farm, but it basically sounds like they’re encouraging you to formalize your business with the intention of allowing you to use their farm as your home base. The details of the business depend on the arrangement. Are they paying you to show their horses? Are you being paid for lessons? Are you being paid to ride/train?
So, basically the business is a small scale lesson barn that never kept experienced riders or had great horses…they did a lot of pony rides and birthday parties and things of that nature. Basically what we’re thinking is that it will be another business based out of their facility so kids that start in their program will move up to mine. I think the plan is that I will just pay them a monthly rent fee for working out of the facility and I will manage the finances of my horses and show program myself.
I never really planned to run my own business. Ideal situation was that I was just hired as a head trainer so I didn’t have to deal with the head ache…but being able to actually run things the way I want them run is very tempting.
I go beyond just recommending separation of personal and business assets If owners don’t treat the LLC as a separate business, a court might decide that the LLC doesn’t really exist and find that its owners are really doing business as individuals who are personally liable for their acts.
What type of business you form depends on your state. The first thing you need is an FEIN, which you can do online in an instant. Then go to your state website to see what types of businesses are allowed. An LLC protects your personal assets from business creditors should your business get into trouble. Forming one is pretty simple - fill out a form and maybe pay a fee.
I don’t think you need a lawyer or accountant at this point. You should be able to track your income and expenses on a spreadsheet or get quickbooks.
You do need liability insurance.
Whatever you, do not pay for a FEIN. There are “services” who will charge you up to $150 to get you an FEIN. It is 100% free via the IRS website. And super simple to do yourself.
I would meet with an accountant. Organizational and start up fees can be amortized and deducted over time. Some prefer a mileage deduction over expensing gas and auto maintenance (The IRS is pushing more and more for business to the mileage deduction). They can also explain what receipts you need to keep, what can be expensed and what can’t. They can be a very helpful resource and help you get set up BEFORE tax time.
