New Independent Contractor PM...what Business Entity?

[Account Closed]

New PM with local real estate brokerage. Need to know what best legal business entity to establish as independent contractor? I assume it is necessary to begin with?

[Brian Pendergraft]

Are they absolutely necessary? No. Many people do business as a sole-proprietorship and just have a DBA. The main benefits of an llc are (1) limited liability protection and (2) flexible tax status. For (1) you may never need liability protection. On the other hand, if there comes a situation where you need it, then you'll be glad that you have it.

For (2) LLC's can elect to be taxed as sole-proprietorships, S-corporations, or C-corporations. Fledgling LLCs can be taxed as sole-proprietorships and change to a more favorable tax status if they need to in the future.

Also, keep in mind they cost money to maintain. MD has a personal property tax return that costs $300 just to file each year (and they will tax you on your businesses personal property). You may also need the help of a CPA or tax preparer. Business bank accounts tend to cost more than personal. I think it's reasonable to expect to spend 1k per year at minimum to properly maintain an LLC taxed as a sole-proprietorship. Closer to 2k if you want to hire a book keeper. Other costs are a registered agent if you want one.

I hope I helped!