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Question
Should I incorporate an LLC for an eBay business.
Answer

To incorporate or to not incorporate — that is the question.

There are a couple of things to consider with a corporate entity structure: liability, compliance, and cost.

The biggest advantage to having a corporation is that it reduces your liability by creating a legal distinction between you and your business. The idea is that if you ever get sued, only your business assets are exposed to risk, not your personal assets.

As a separate legal entity, there are more compliance issues to be aware of. A corporation needs to file its own business tax return every year (Form 1120), and many states and local governments have separate reporting rules you’ll need to be aware of as well.

Lastly, corporations tend to be the more expensive option. In addition to the extra filing and compliance fees, it’s also the only entity that has to deal with “double taxation.” Income generated in your corporation is taxed at corporate tax rates, and then again at individual tax rates when you take money out of the business.

For most small business owners, registering as a corporation is far too costly. They often choose to stay as an LLC or elect the hybrid model known as S corporations.

An S corporation gives you many of the same advantages of a corporation while circumventing the double taxation issue.

You do have to file a separate business return every year (Form 1120-S), but all business profits “flow through” to your personal return and are only taxed at your personal income tax rates.

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Sarah York, EA

Sarah is a staff writer at Keeper Tax and has her Enrolled Agent license with the IRS. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. She has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, baking, and overwatering her houseplants.

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