Business Structure for Independent DM

[Jonnyola87]

Any independent DMs incorporate themselves? I want to form an official entity so I can use it for tax purposes and as a degree of separation between me and my assets. As a DM I assist with my shop's classes, I lead weekend local dives independently, and do some dive leading during travel. I'm thinking an LLC would make sense. Anyone have any experience with this?

 

[Zef]

Incorporation is not a good idea for a small business from a tax standpoint. If you are leading dives or doing anything dive related as a business function, then it would be smart to register as an LLC/LLP....this way, as you mentioned, your personal assets are severed from your business venture and are protected in case of a lawsuit against the business.

-Z

 

[Scuba Scott]

Incorporation is not a good idea for a small business from a tax standpoint. If you are leading dives or doing anything dive related as a business function, then it would be smart to register as an LLC/LLP....this way, as you mentioned, your personal assets are severed from your business venture and are protected in case of a lawsuit against the business.

-Z

Unless you are the one personally leading the dive. You personally and your LLC would both be liable. You would have no additional protection from the LLC.
If one of your employees was involved in an incident then the liability would be on that employee, personally and your LLC. Your personal assets outside the LLC would be protected from your employee's liability as long as you were not directly involved.
A single member LLC is generally worthless for liability protection.

 

[Scuba Scott]

...a degree of separation between me and my assets.

Being in an LLC does not help you if you are involved in an incident. It only protects your assets from the stupid things your employees do.
Your only option is to get all your assets out of your name, maybe with a trust. Do you have someone you trust enough to hold all your assets?
Most DMs protect their assets by not actually having any and sleeping in the compressor room because they are homeless. This is really the best way to run your DM business.

 

[Zef]

Unless you are the one personally leading the dive. You personally and your LLC would both be liable. You would have no additional protection from the LLC.
If one of your employees was involved in an incident then the liability would be on that employee, personally and your LLC. Your personal assets outside the LLC would be protected from your employee's liability as long as you were not directly involved.
A single member LLC is generally worthless for liability protection.

Establishing your business as an LLC has benefits even if one does not have personal protection if you, as the single member, are the cause of the incident. For instance, your client is putting their gear together and their tank falls over causing the valve or tank to rocket against a nearby parked car, or worse...it strikes a person. In the event of a lawsuit due to this incident, your assets are severed from the business unless it is established that your personal negligence contributed to the incident.

OP, regardless of whether you establish your DM business as an LLC or remain a sole proprietorship, be sure to brush up on what you can deduct from your taxes...use of your car, gear, phone, certain meals, insurance costs, costs to maintain certification, continued training, and more can be tax write-offs as business expenses.

-Z

 

[Jonnyola87]

Being in an LLC does not help you if you are involved in an incident. It only protects your assets from the stupid things your employees do.
Your only option is to get all your assets out of your name, maybe with a trust. Do you have someone you trust enough to hold all your assets?
Most DMs protect their assets by not actually having any and sleeping in the compressor room because they are homeless. This is really the best way to run your DM business.

Hahaha as long as that compressor room is on a tropical island, I can live with that.

 

[Jonnyola87]

Establishing your business as an LLC has benefits even if one does not have personal protection if you, as the single member, are the cause of the incident. For instance, your client is putting their gear together and their tank falls over causing the valve or tank to rocket against a nearby parked car, or worse...it strikes a person. In the event of a lawsuit due to this incident, your assets are severed from the business unless it is established that your personal negligence contributed to the incident.

OP, regardless of whether you establish your DM business as an LLC or remain a sole proprietorship, be sure to brush up on what you can deduct from your taxes...use of your car, gear, phone, certain meals, insurance costs, costs to maintain certification, continued training, and more can be tax write-offs as business expenses.

-Z

That’s mainly what I’m looking for. As it is, I do spend a lot of my time and money maintaining gear traveling to meet with people, etc. So it would be nice to be able to deduct some of that as business expenses since that’s legitimately what I’m doing. Even if it’s not producing much income, I’d still consider it an entity with my name on it. LLCs seem sufficient for that at least.

 

[berndo]

That’s mainly what I’m looking for. As it is, I do spend a lot of my time and money maintaining gear traveling to meet with people, etc. So it would be nice to be able to deduct some of that as business expenses since that’s legitimately what I’m doing. Even if it’s not producing much income, I’d still consider it an entity with my name on it. LLCs seem sufficient for that at least.

Have you looked into how much insurance, transportation cost etc. is and how much money you can make?

 

[Jonnyola87]

Have you looked into how much insurance, transportation cost etc. is and how much mone you can make?

Well I have to play with it a little bit. With some work, DMs around here can make some decent extra cash doing ReActivate and Discover Local Diving. If the potential tax benefits and income outweigh the costs of the LLC and insurance, it makes sense. DAN PLI isn’t tremendously expensive, and I can get PLI through my local shop as well.

 

[Zef]

LLCs seem sufficient for that at least.

As an LLC, for tax purposes, the business is considered a "pass-through entity"...your business's income tax would be reported on your individual income tax filing. If you were to incorporate, other than it being more expensive and involved to register your business, your business would be a separate tax entity and you would be an employee/shareholder of the business...In this scenario you would have to file/pay income tax for the business, and file/pay income tax as an individual for income or dividend received as an employee/shareholder . In a sense, you would be double taxed for the same income if you incorporate as compared to establishing your business as an LLC, without any furhter protection of your personal assets.

Edit: There are different types of corporations when one incorporates, and before anyone jumps the shark, it is true that an "S" type can be considered a "pass-through entity" for tax purposes, but there are more complex issues, particularly for a single member entity, as the shareholder/owner is required by the IRS to draw "reasonable compensation" (fair market value salary) from the business, if not you run high risk of IRS audit and other issues. As an LLC one does not have to establish salary, any revenue not used for futher business expenses is basical personal income of the member/owener. It is more nuanced than that but that is the gist of it.

-Z