Starting an LLC: Where to begin?

Robert Chavez92 said:Can I pull out the initial capital (20k) right after setting up an LLC? And is just writing "initial capital withdrawal" enough when I'm making the transfer from the account?

copperharbor4 said:Question: A guy I know is setting up an LLC and wants to sign a lease with me for a portion of our apartment (which is in my name). How does this contract factor into my tax return? Am I required to report this as secondary income, or what's the deal?

Nicholas Gomez5 said:Quincy:

Let’s look at a quick example—imagine we have a brand-new sole proprietorship and a newly formed LLC side-by-side. Here is the scenario: they perform a service for a client and bill $10 $0.00. Let's keep the numbers simple for the math. How much money actually disappears into taxes and overhead for the small business owner versus the LLC? And what is the actual take-home pay for both?

1. It all depends on which type of business entity you've registered.
2. Income tax, sales tax, and payroll costs end up being pretty much the same whether you're running a sole proprietorship or an LLC.

Henry Edwards33 said:Actually, profit for a sole proprietor follows progressive tax brackets, whereas an LLC stays at a flat 21% corporate rate.
Sales tax works differently too—sole proprietors deal with it based on what’s actually collected, while an LLC tracks it based on invoices issued.
As for self-employment taxes for a sole owner who isn't working elsewhere, if you follow the Police Department order, you're looking at roughly $577 this year.

And just a heads-up: if you pull your initial capital from a loan rather than equity, you'll be hit with interest.

mellowfox56 said:From what I understand, family members can work for a sole proprietorship without being officially on the payroll, but that’s not an option with an LLC. If I’ve got that wrong, please set me straight.
You’d probably have better luck Googling "sole proprietorship vs LLC" or searching business forums for threads about the pros and cons of each structure.
Maybe try asking something more specific? Like, if you're looking at starting a business with zero employees, for example. It's hard to give good advice when the question is this vague.

Nicholas Gomez5 said:Could you clarify what you mean by "profit in a sole proprietorship goes by progressive rates"? Can you give me an example, or are you talking about income tax?

Henry Edwards33 said:Yeah, I was referring to income tax. I used the word "profit" just to make it easier to follow, since that’s how people usually talk about it when dealing with small businesses and filing their returns. Of course, there are exceptions for those high-earning outliers, but you generally have to hit certain milestones in revenue, headcount, and total asset value before you even get close to that level.

Nicholas Gomez5 said:1. You’ve got to have a formal lease agreement for the space where you're registering the business.
2. Depending on your tax filings, they might trigger an immediate inspection of your physical location.
Pro tip: Make sure your business address is clearly posted!
3. The IRS can show up whenever they want, regardless of where you set up shop.
4. My advice? Grab a legitimate OS license, then stick to open-source tools for everything else.

silverbison293 said:That first point isn't quite right... and if I'm wrong, please, by all means, drop a link proving otherwise—because you don't actually need a formal lease agreement for your headquarters just to incorporate a company.☕

silverbison293 said:Listen, Nicholas Gomez5, 😉, I run my own business, and honestly, I’ve never once dealt with a formal Lease Contract for a registered headquarters—nor have I ever run into any issues with the FBI, whether it was for my own outfit or for other companies I helped get off the ground.

That’s exactly why I asked you for the link... I’m not interested in getting boggedED up in "he said, she said" nonsense—you either need a Contract or you don't.

What actually matters is having a valid service address where the company name is clearly displayed.

😍

Robert Chavez92 said:Can I pull out the initial capital (20k) right after setting up an LLC? And is just writing "initial capital withdrawal" enough when I'm making the transfer from the account?

Nicholas Gomez5 said:You won't actually have the full amount sitting there ready to go. The bank is going to snatch their service fees right away—and those fees change depending on whether you signed up for extras like online banking. You really need to leave some cushion in there so the bank can cover its monthly service charges.
Let's say you could actually pull out about $6.50.

That's basically treated like a loan that gets hit with sales tax.

Robert Chavez92 said:Thanks for the info.

Instead of treating it like a loan, can I just pull the cash for the business account and record it as petty cash?
That way, I could pay all my small cash expenses directly from the register.

Nicholas Gomez5 said:Family members can't actually "work" there if they aren't employees. They can HELP out, sure, but they can't take over a role. For example, they can help you stock shelves, but they aren't allowed to ring up a sale or issue a receipt.

mellowfox56 said:Man, please don't confuse people with technicalities that don't even matter anymore. They totally can process a transaction because everything is digital now; you don't even need a physical signature since there's always a disclaimer saying "valid without signature." And look, if it really comes down to it and someone needs a handwritten receipt, the owner just signs it. Or, if we're talking about official stuff, someone can just list a family member as an authorized signer at their bank.
I mean, what would stop the owner's son from working there? You see kids taking over shifts for their parents in retail stores all the time, doing the exact same job as anyone else. Same goes for a spouse, too.

Nicholas Gomez5 said:You can withdraw it under material expenses, as long as you back everything up with receipts.

Robert Chavez92 said:Do I need to prove everything upfront or...?
Basically, is it mandatory to make the purchase first (collect all those paper receipts) and then withdraw that exact amount from the business checking account
or am I allowed to just pull out a lump sum (basically moving it to the petty cash drawer) and then slowly gather receipts over time until the balance clears?
If that's an option, does it mean I can just keep a certain amount of cash sitting in the office safe without having to explain why it’s sitting there instead of in the bank? And is there actually a legal cap on how much cash a small business can keep on hand?

I know I’m probably not using the right accounting terminology here—hope this makes sense. 🙂

Nicholas Gomez5 said:Did you tell the inspector conducting the audit at your company not to confuse you with trivialities? And did you get away with it? If so, props to you!

And let's be clear: signing a document and issuing a receipt are two different things.

mellowfox56 said:Nah, I didn't say anything to the inspector because there wasn't even a reason to. The invoices were signed by the person who actually had the authority to do so. I feel like we've already made it clear who’s authorized to sign documents, so there's no need to get defensive about it. We're just here to talk about how things actually work on the ground and what the day-to-day reality looks like.
It's totally possible for an inspector to trip up and try to penalize you for something that wouldn't even cross our minds.