LLC or not?

Flyingfanatic

Flyingfanatic

Pre-takeoff checklist
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Flying Fanatic
I'm thinking of increasing the amount of flight instruction I provide in the future. I currently only have one student and the occasional Flight Review.

Is it worth it to develop an LLC or just get a tax ID number and a fictitious name registration? I may develop my work further into contract flying down there road. I can retire in 6 1/2 years so I thinking of going back into Aviation after I retire.

Thoughts?
 
Flyingfanatic said:
I'm thinking of increasing the amount of flight instruction I provide in the future. I currently only have one student and the occasional Flight Review.

Is it worth it to develop an LLC or just get a tax ID number and a fictitious name registration? I may develop my work further into contract flying down there road. I can retire in 6 1/2 years so I thinking of going back into Aviation after I retire.

Thoughts?
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What are you expecting to achieve with the LLC?
 
Tax and liability benefits. But I'm really not sure what those are specifically.

I have the feeling that the money made won't really justify the LLC for the tax benefits and liability insurance could handle that, but I thought I'd ask those that have been there and done that.
 
LLC will cost time and money to form and maintain. I have one. It provides no liability protection for my personal actions, only those of other members or employees of the LLC (if any exist). It provides no tax benefits over running my business as a sole proprietorship. YMMV.
 
Join NAFI then Avemco insurance for CFI covers a lot of what you do as a CFI.
 
Flyingfanatic said:
Tax and liability benefits. But I'm really not sure what those are specifically.

I have the feeling that the money made won't really justify the LLC for the tax benefits and liability insurance could handle that, but I thought I'd ask those that have been there and done that.
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You get little to zero liability benefit of an LLC in your situation, unless your LLC has multiple instructors.

An LLC can provide personal liability protection if another member does something wrong. But in an LLC, you are still very much liable for any negligence on your part.


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Got a simple LLC I use for my plane, easy to set up and doesn't cost much, I only use it for accounting/tax reasons, like others said it doesn't do jack for lawsuits or anything like that.
 
Filling out tax returns is no fun. And you have to do another if you incorporate.

So instead of tax savings, you might just get tax hassles.

OTOH, if the proposed tax cuts for “pass-through” entities happen, they might be good for your flight instruction business, if your personal tax bracket is higher than the reduced “pass through” rate.
 
Fictititous name doesn't provide any protection at all. It's just a thing that recognizes another name (D/B/A, T/A for an existing business). For a one man operation, an LLC or Corporation isn't likely to provide ANY additional liability protection.

As for the proposed tax cuts, those who think they are going to see anything from the tax cut bill if it gets passed have been duped as badly as the rest of the country. There's actually ZERO change for service-based businesses, such as flight instruction would be. It's only a relief for capital costs.
 
Hangars and airplanes are capital costs, are they not? Might want to get a sim. Plenty of capital involved with even the smallest of flight training operations.
 
flyingron said:
Fictititous name doesn't provide any protection at all. It's just a thing that recognizes another name (D/B/A, T/A for an existing business). For a one man operation, an LLC or Corporation isn't likely to provide ANY additional liability protection.

As for the proposed tax cuts, those who think they are going to see anything from the tax cut bill if it gets passed have been duped as badly as the rest of the country. There's actually ZERO change for service-based businesses, such as flight instruction would be. It's only a relief for capital costs.
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How does that work? I don't know much, if any of the details. What it sounded like was the 'boss' would get his take home pay after taxes were applied at the Corporate rate instead of at the Personal rate.
 
A single member llc is a non-entity in the eyes of the irs. One would need a separate tax id for a corporate rate.
 
FORANE said:
A single member llc is a non-entity in the eyes of the irs. One would need a separate tax id for a corporate rate.
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A single member LLC can elect to be taxed a corporation. It's a 1 page form.
 
Flyingfanatic said:
Tax and liability benefits. But I'm really not sure what those are specifically.

I have the feeling that the money made won't really justify the LLC for the tax benefits and liability insurance could handle that, but I thought I'd ask those that have been there and done that.
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Ask an accountant about tax benefits. But, in terms of personal liability, for an individual instructor who is doing all the training himself, there are none. or better of for worse, the goal of a limited liability entity is not to remove personal exposure for what we do. If you expand and hire other instructors, there may be some. benefit in insulating you from something they do.

I did it, but for reasons having nothing to do with liability or taxes. In my case, I thought that the "LLC" label made it sound more like a business rather than just a guy. Strictly marketing.
 
If you can get someone else to be a partner in the LLC, the liability protection alone would be worth it. It takes little time or money to create a LLC.

If the new tax bill working through Congress right now passes, there would be significant benefits to a LLC. Pass through income would be taxed at 25% rather than a higher personal rate. Partner or not, that carries some kind of benefit.
 
bflynn said:
If you can get someone else to be a partner in the LLC, the liability protection alone would be worth it. It takes little time or money to create a LLC.

If the new tax bill working through Congress right now passes, there would be significant benefits to a LLC. Pass through income would be taxed at 25% rather than a higher personal rate. Partner or not, that carries some kind of benefit.
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Yep, there are a lot of states too that tax pass-thru income at a lower level than personal income. Kinda BS if you ask me, particularly when it's a 1-owner LLC. But hey, if they're going to write the law that way might as well make it work to your advantage.
 
flyingron said:
Fictititous name doesn't provide any protection at all. It's just a thing that recognizes another name (D/B/A, T/A for an existing business). For a one man operation, an LLC or Corporation isn't likely to provide ANY additional liability protection.
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I don;t know where the "protection from liability" rationale came from; probably the same place that says you should incorporate in Delaware...

flyingron said:
As for the proposed tax cuts, those who think they are going to see anything from the tax cut bill if it gets passed have been duped as badly as the rest of the country. There's actually ZERO change for service-based businesses, such as flight instruction would be. It's only a relief for capital costs.
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Well, we do have to pass it to see what's in it. But as to capital cost relief, I say "buy an airplane."

Earlier this year I opened an LLC to own the next airplane for legal separation and privacy reasons if I use it for my business. Also, it'll make it easier to add "partners" should I decide to do that. I'm already paying for tax prep, so adding another form is a minor incremental cost.
 
paflyer said:
I don;t know where the "protection from liability" rationale came from; probably the same place that says you should incorporate in Delaware...
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It’s in the name! It says ‘Limited Liability’....therefore it must be good, right?

And Legal Zoom is laughing all the way to the bank....
 
paflyer said:
I don;t know where the "protection from liability" rationale came from;
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That's easy. The whole idea behind a "limited liability" company or other entity which provides "limited liability" protection (corporations, some forms of registered partnerships, even business trusts in some states) is, um..., er..., well, "limited liability": the individual is not personally liable for company obligations.

It's not a particularly long stretch, albeit incorrect, to conclude the entity protects us from our personal obligations so long as we are operating through the company. It really comes as no surprise to me. 40 years of experience tells me it is the single most common misunderstanding of what a limited liability entity is and what it is designed to protect. I've come across people who claim to be familiar with the concept who don't understand it fully; a couple of easy questions can show they don't.
 
For a single free lance guy, I wouldn't bother.

Cash or barter FTW
 
What an LLC does is it creates a wall between the liabilities of your company, and your own personal assets.

If someone gets a judgment against XYZ, LLC, they can only go after the bank account, property, etc. of XYZ, LLC. They cannot go after the bank accounts or property of XYZ, LLC’s owners.

So while forming an LLC won’t stop someone from suing your company, what it will do if properly structured is ensure that they can only sue your company, and not you personally.

Now, in this law suit happy country we live in, someone might sue you personally to try to take your business away and liquidate it. The assets of the LLC are not yours, but your interest in the LLC is, and can be attached.

For example, if you own all the shares of your own business, and a judgment is rendered against you, the creditor can seize your stock in your business. But they can’t seize assets (buildings, airplanes, equipment, etc.)

What the creditor can do is get a charging order against your interest in the LLC such that if the LLC makes payments to its members, then the creditor will get those payments and not you. It’s similar to garnishing wages.

Your operating agreement can be written to prevent a creditor who seizes your LLC membership interest from exercising voting rights or any control over the business’ daily operations. This is a core concept of the llc’s asset protection.

From LLC for dummies....aka my lawyer.

But for a single person operation, this might be a good option:

brien23 said:
Join NAFI then Avemco insurance for CFI covers a lot of what you do as a CFI.
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What you would do is create an LLC. You can create one pretty inexpensively now, maybe $200. Google "create LLC". If you want to be sure you are doing it right hire a lawyer and pay his fee (750 or so). Get a tax id from the IRS for it and open a checking acct in the LLC's name (talk to your bank). If you want anonymity, you need to hire a registered agent and pay that yearly fee. This gives the LLC an address independent of yours. Most states have an LLC registration process and there is a fee there. So it is a bit of a hassle and maybe $200 or so a year to do those. Small single owner LLC's usually just pass the income to the owner (talk to your accountant) and you pay the same tax as you would if you just ran it as a proprietorship. As for liability protection, if its just you, you don't really get much.Any lawyer can penetrate it and argue successfully that for liability, the LLC is you, so the LLC goes away. Only larger operating corporations with multiple owners and the corporation having assets of its own get liability separation. A real corporation with profits and operations of its own gets seperation. Just a one man holding company doesn't. Where the dividing line is gets argued in court.

If all you want is an LLC holding company for your airplane, its simpler. Just create the LLC, send the LLC papers to the FAA and put the plane in the LLC's name. Again might want a registered agent, otherwise they look up the N number and get your address. But a registered agent isnt really necessary.

An LLC as a holding company for your airplane won't save you from sales tax that I know of. Some people register the LLC in a state that doesnt have sales tax and get a registered agent in that state and all the FAA paperwork goes there too. That one might work, I dunno. Its kind of dodgy. But big corporations do it successfully, why not you? Thats what some of these lawyers are selling. Most states will argue that if you are keeping it as a personal airplane in their state regardless of what entity it is registered to you have to pay the sales tax, but they get the FAA records with the address you give them, so how would they know? I don't know if it would work. It probably could be done but its gonna be costly because you have to do it right. And the rules on state sales tax and state registration fees vary greatly from state to state.

YOU have to decide if its really worth all this trouble. Its an ongoing year after year thing. Keeping it a proprietorship and everything in your name is quite a bit simpler. But a simple LLC can be done without too much expense. Just that if you are going to do it right, you have to pay for some legal and possibly accountant help unless you know how or have a friend that knows how.

Google "LLC wiki" and "Registered Agent wiki"

My advice would be to start simple. Then if its successful you can spend the money to make it an LCC later on. One thing everyone needs is an accountant. He has lots of clients and can advise you because he sees what works.


Good luck finding a lawyer that knows much about airplanes.
 
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