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Daycare and Taxes>LLC vs Sole Proprietorship
1vs7omg 08:03 AM 10-19-2011
I have been reading threads for 7 hrs now learning alot. I should be licensed in 40 days for a family daycare. I'm confused about being an llc or sole proprietorship. I will have daycare insurance with a $2,000,000 aggregate. I thought that insurance would be enough, but someone said what if they sue you for $5,000,000, then what. I don't know.

I was going to do just sole proprietorship, but now I'm thinking about what the insurance man said and with the economy so bad right now, (some people will want to try to sue for anything), maybe I should go to a llc.

I am racking my brains right now, researching everything about it. Some say llc, some say you don't need it.

Also, I didn't read anything yet if I need to register my daycare name. It's a fictitious name, so dba ..... any help would be appreciated.

I am ready for the state to come in, just would like to do these last minute details..

Thank you.
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TomCopeland 08:39 AM 10-19-2011
You should buy as much business liability insurance as you can afford. At this time, $3 million aggregate is the maximum you can buy (as far as I've seen). It's highly unlikely that someone could successfully sue you for more than that, and win.

It's not clear that incorporating as a Limited Liability Company (LLC) would give you any more personal liability protection. There are fees and additional record keeping associated with an LLC. I don't think it's necessary if you have the maximum business liability insurance. I discuss this in great detail in my book Family Child Care Legal and Insurance Guide.

To register your business name, contact your state secretary of state's office, or your county court clerk.
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1vs7omg 09:02 AM 10-19-2011
Thank you so much for clearing this up. I will check that book out.
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Fruitloops1 01:58 PM 01-04-2012
Originally Posted by TomCopeland:
You should buy as much business liability insurance as you can afford. At this time, $3 million aggregate is the maximum you can buy (as far as I've seen). It's highly unlikely that someone could successfully sue you for more than that, and win.

It's not clear that incorporating as a Limited Liability Company (LLC) would give you any more personal liability protection. There are fees and additional record keeping associated with an LLC. I don't think it's necessary if you have the maximum business liability insurance. I discuss this in great detail in my book Family Child Care Legal and Insurance Guide.

To register your business name, contact your state secretary of state's office, or your county court clerk.

Would it be better to have sole proprietorship for a home DC?? With a sole proprietorship would I keep my personal acct seperate or have the DC stuff along with my personal checking acct? How about when the parents pay me? Should the checks be payable to me or my DC name? I work at a credit union now and I know checks payable to a business or entity name would need to be deposited into a business acct w/ the same name.
What did everyone else do when you first started out?
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grandmom 03:04 PM 01-04-2012
I incorporated my business halfway through the year. My accountant said I would save a lot of money on taxes. I'll let you know. I also bought the most insurance I could afford.

One thing about being incorporated I hand't thought of is that now as an employee, the business pays my L&I and Unemployment benefits. As a sole proprietor, I had none, and paid none.

With the intrusive rules my state just passed, and the frequency of the state shutting providers down on a whim, I'm thinking unemployment benefits might be a good benfit for such a small amount I pay.
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TomCopeland 05:19 PM 01-05-2012
If you are a sole proprietor it's not a requirement that you keep your business and personal records separate (while it is if you are an LLC).
You can have a business name if you want. You can have parents write you a check in your name. If they write it to your business name, you'll need to have a business checking account.
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TomCopeland 05:20 PM 01-05-2012
Originally Posted by grandmom:
I incorporated my business halfway through the year. My accountant said I would save a lot of money on taxes. I'll let you know. I also bought the most insurance I could afford.

One thing about being incorporated I hand't thought of is that now as an employee, the business pays my L&I and Unemployment benefits. As a sole proprietor, I had none, and paid none.

With the intrusive rules my state just passed, and the frequency of the state shutting providers down on a whim, I'm thinking unemployment benefits might be a good benfit for such a small amount I pay.
Let me know if you do same money on taxes by being incorporated. If you incorporated as anything other than a single person LLC, you will lose the ability to deduct your house expenses (property tax, mortgage interest, house insurance, utilities, house depreciation).
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Unregistered 06:57 PM 04-28-2016
I have a follow up question for Tom on this old thread regarding business structure! If you stay as a sole proprietorship can you still pay yourself a salary and deduct taxes? I would like to still have the ability to be paying into SS and Medicare for myself (as I did as an employee in the past; helping to ensure a decent SS benefit down the road) and I'm concerned that being a sole proprietor and trying to deduct all possible expenses, the goal is to have the smallest taxable income possible, which I believe leads to paying less self employment tax, correct? Doesn't that mean I'm paying less into my SS/Medicare ?
Also, if I'm a sole proprietorship and DO pay myself a salary, I'll still have some self employment taxes as well? Finally, if I also have an assistant, I suppose I can still pay them salary regardless of which business structure my daycare is?
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TomCopeland 08:20 AM 04-29-2016
Originally Posted by Unregistered:
I have a follow up question for Tom on this old thread regarding business structure! If you stay as a sole proprietorship can you still pay yourself a salary and deduct taxes? I would like to still have the ability to be paying into SS and Medicare for myself (as I did as an employee in the past; helping to ensure a decent SS benefit down the road) and I'm concerned that being a sole proprietor and trying to deduct all possible expenses, the goal is to have the smallest taxable income possible, which I believe leads to paying less self employment tax, correct? Doesn't that mean I'm paying less into my SS/Medicare ?
Also, if I'm a sole proprietorship and DO pay myself a salary, I'll still have some self employment taxes as well? Finally, if I also have an assistant, I suppose I can still pay them salary regardless of which business structure my daycare is?
Being a sole proprietor means you do not pay yourself a salary. Instead, any money you have left over after paying expenses is yours and you will pay Social Security/Medicare and income taxes on this profit. Therefore, you will be credited towards receiving Social Security benefits.
Yes, the higher your deductions, the lower your profit and the less you will contribute towards Social Security. This could mean less in Social Security benefits when you retire.
But, if you incorporate as an LLC and have the same expenses, you will be in the same boat, because you will be taking your profit as salary.
You can hire employees no matter what your business structure.
My advice - remain as a sole proprietor. Claim all allowable expenses. Put aside money into your own IRA to help augment your retirement income.
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Tags:llc, sole proprietorship, tom copeland
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