LLC for Comp team/ BBQ sales???

["Bone to Bark" BBQ]

Does anyone have any thoughts on forming an "LLC" to include the competition team & a little side business of vending BBQ? Has anyone done this before, and if so, how painful was the whole process? Is it worth it?

[Rub]

Swamp Boys BBQ is an LLC. Not hard at all.

[Sawdustguy]

Wouldn't forming an LLC expose you to the government and force you to file tax returns each year? The only advantage I can think of in forming an LLC is to protect your personal assets in case of bankruptcy or civil litigation, but I am no expert.

[indianagriller]

it would also allow you to offset any winnings with expenses i believe, i know most comps i cook require a W9 to be filled out or if you win a kingsford event you have to give them your tax info before you get paid, so the Govt would know anyways if you win...

[dmprantz]

I'm neither a lawyer nor accountant, so keep that in mind as you read this. The process of forming an LLC is usually relatively painless and relatively expensive compared to other company types. For the question of "is it worth it?" Financially I would say "probably not." You have to pay for the business itself, and then are subjected to business rules and expenses. Keep in mind that if your competition gear is used for commercial purposes, there are usually different sets of laws that apply, and insuring it may be more expensive as well. Also, if you drive your personal vehicle to comps, it may be uninsured at that time because it is a business use of personal property. Your tax rate wouldn't change either since you would personally owe taxes, but it might add more work to the process. You should be paying taxes on your winnings anyway, and treating your expenses as a hobby if your tax advisor says that's okay...right? LLCs do add an insulation barrior so that you aren't personally liable for things, but when is that going to come into play at a BBQ comp?

For the vending side of things, you should do whatever your city/county/state requires you to do to sell food. If you need to be a company, be a company. If you need HD approval, do it. If you have to be a company, an LLC might be a good idea because of the liabillity aspect, even with the increased cost. Whether or not you do what you should do is between you and your government officials, just like with speeding.

I know some teams who are businesses, but most are not. Of the ones who are, I think most of them have some other business as well (restaurant, catering, product sales, etc), and include BBQ comps as part of that business (marketing expense?). If you aren't already running a business, I don't know that I personally see an advantage, but if you set one up for vending, it's probably a good idea and worth it.

Just my $0.02. YMMV.

dmp

["Bone to Bark" BBQ]

Thanks for the replies..... Let me add one thing more. My sponsor, would prefer a "company" to cut the sponsorship checks to for his own protection, and for mine. I should add that I am an employee of his, and I don't want monies paid to me personally, to be mistaken for wages, if he were to be audited !
Any other ideas or suggestions?

[Rub]

My wife handles the taxes but it's not expensive to be one. Seems I pay less than $125 per year. All receipts related to BBQ are deducted, and I'm safe from liability issues.

[Fiveflat]

In California, you don't have to be an LLC to have a proper business. LLC is just that, a Limited Liability Company to protect you from liability personally. Nothing to do with ability to file taxes and write off expenses or claim income as a sole proprietor.

[Cloudsmoker]

I did this myself last year. Downloaded a sample form for Organizational Document (similar to corporate charter and bylaws), and did everything else online. Was able to take Section 179 depreciation to completely write-off my mobile cooker. In Texas, need to file quarterly tax returns (penalties if you forget). But, I've been able to use the LLC to buy meats wholesale at Wynn Foods, RD, etc.

If you've got the time and attention span, don't see any downside. No attorney, but happy to help out if I possibly can.

[dmprantz]

Originally Posted by Cloudsmoker

Was able to take Section 179 depreciation to completely write-off my mobile cooker.

Just making sure, but you can only take that deduction to offset income to the business, right? i.e. you you couldn't reduce your personal tax liabillity, just the revenue from comp winnings and vending sales, etc, right? If I'm wrong, that would be a game changer....

dmp

[PCDoctor_1979]

You have to show a profit three out of five years to prove to the IRS that your business is not a "hobby". IRS does not allow a taxpayer to deduct the expenses of a hobby that's not run for the purpose of making a profit. So by taking Section 179 on the smoker the first year will reduce your personal tax liability, but you will really need to make money the three of the next four years to avoid the "hobby" classification by the IRS. I think that organizing your team as a proper business allows you to document all of your expenses to offset your winnings or vending revenue. For more information, follow this link. http://www.irs.gov/uac/Is-Your-Hobby...it-Endeavor%3F

[Cloudsmoker]

Assuming your personal adjusted gross income is sufficient, you can certainly deduct business losses on your personal tax return. Again, not a tax accountant by any means, but that's one of the main ideas. The issue you'll face is that sooner vs. later you'll need to show some positive revenues and earnings or the IRS may consider this is "hobby", not a business.

[CBQ]

Originally Posted by dmprantz

I'm neither a lawyer nor accountant, so keep that in mind as you read this. The process of forming an LLC is usually relatively painless and relatively expensive compared to other company types. For the question of "is it worth it?"

DMP,

Did you mean inexpensive? An LLC is pretty cheap to create, not all that different from a sole proprietorship and much safer in terms of liability. As others have stated, you need to eventually make a profit so unless you are really good, or catering on the side, you probably shouldn't do it.

[dmprantz]

Originally Posted by CBQ

Did you mean inexpensive? An LLC is pretty cheap to create, not all that different from a sole proprietorship and much safer in terms of liability.

Actually, I meant expensive, but I did say relatively. In the grand scheme of things it may not matter to you, but it may. Keep in mind that almost all of this varies from state to state, and again IANAL, but in my state, I believe a sole propretership is free, or just the cost of a business license. An LP is $100, and an LLC is a minimum of $300 (it can go up to $3,000!). I'd say three times the price is "relatively expensive," and an LP may suit your needs. One or both of those could be annual costs too. I honestly don't know the costs of corporations, but my point is that LLCs are not the cheapest option out there, even if it's not enough money to make you flinch.

dmp

[CivilWarBBQ]

We went LLC last year. You pretty much have to if you want to get cash sponsorships of any significance (product/in kind sponsorships are another story). All of the corporations I've dealt with in pitching for sponsors want to deal with an organization, not an individual.

Yes it can be a paperwork pain and you have extra expenses to keep it afloat, but the day when you have a fat check to deposit you feel the advantage. Nobody wants to hand forty percent of their winnings over to the tax man.