LLC? Why not?

[Guilherme]

@IronwoodFarm

If you have adequate insurance coverage, an LLC may be unnecessary. It all depends on your business.

True enough, but insurance is not an either/or thing for someone engaging in equine business. If your name is Gates or Kennedy or Clinton you might have sufficient liquid assets to “go naked” and not purchase coverage. But the number of people who can do that is small. And all you need is one claim based upon permanent quadriplegia* to wipe out whatever ever savings you might have had.

As noted in multiple posts, above, there are reasons beyond taxes and liability to go the LLC route. But that action has consequences and they should be understood before that route is selected.

G.

*Think Christopher Reeve.

[Aleuronx]

Okay Wicky, but what about the horse???

[scruffy_the_cat]

Oh and Wicky, because of my own sad tale of woe, I now have an equine lawyer if you’d like their name.

[Wicky]

Ah scruffy, I am so sorry!

So - we have negotiated for a while (I hate negotiations). Finally we have a signed agreement. Vetting will be April 8. I’ll go back to Florida for it. I have found a new barn and trainer for my herd, and will move there whether or not the horse vets. I’m getting old, and have a limited time to go as far as I can. Of course, this means I have to continue consulting, which I was seriously contemplating giving up.

Thanks everyone! I learned a lot about LLCs.

[clanter]

@mvp

Well, yes… of course just which species of negligence this will be is the subject of the lawsuit. But that has nothing to do with having that “insulating layer” of an LLC or not.

many LLC operations are run out of a person’s back pocket, they just think there is a firewall but will not specifically segregate the duties of their Business and their Personal Live… this mixture make for a very clouded relationship.

There needs to be lines drawn in the sand between providing separations, if not then both the LLC and the Person can be equally responsible for any wrong doing or failure

[Quickstar]

@Displaced Yankee

Many people have brought up some great points and I don’t care for the article referenced; it misses some disadvantages. Here are some accounting things to take into consideration:

Accounting: If you are a single member LLC and make an S election to be taxed as an S corp, you will need to file your 1120S by March 15th. The pass-through earnings flow through to your personal return via a K1 and of course, your personal return is due April 15th. This means you will probably end up paying your tax preparer for an 1120S and your 1040 (personal return). This is something you need to weigh against the advantages.

Hobby Loss rules: The IRS can rule that your business is really a hobby and your losses will be limited to the amount of earnings you make in a year (ie: you can’t claim a loss, just that you broke even). The most widely known hobby loss rule is that you have to make a profit 3 out of the last 5 years (profit 2 out of the last 7 for activities involving horses). There are other factors that can mitigate the 3 out of 5 years rule but LLC’s do not protect you from hobby loss rules. From my conversations in the accounting world, the IRS is particularly picky about horse businesses (breeding operations really) due to finding many wealthy people offsetting their earning by losses on horse businesses (deliberately being run at a loss).

As many people have said, LLC is not a one size fits all. It has its place but is worth consulting with a lawyer, CPA, and an insurance agent to see if it is the BEST fit for you.

Just a comment here–A single member LLC is, by default, a disregarded entity, and its activity is reported on Form 1040, Schedule C. There is no other IRS income tax form to be filed. In order to be an S corp, one would have to file an entity classification election first to be treated as a corporation. Then, one would have to file an election to treat that corporation as an S corp.

Edit: The entity classification can be done together with the S election on the same form.