To start your business, you will need a business name to run it under. The most common way to do this is with a DBA (Doing-Business-As).

This basically means that your name is John Doe and you are “doing business as” John Doe’s Landscaping.

This is how I started out my business. However, the first year I filed taxes I got screwed, and this is why you get screwed operating as a DBA:

You know when you get your paycheck every week from your current employer, you get taxes out, right? You get taxes out such as TDI (temporary disability insurance), Social Security, Medicare, Unemployment taxes, etc.

Well what you don’t know, is that your employer has to pay taxes on your behalf on whatever payroll they pay you. Specifically, your employer has to match your Social Security tax amongst others.

When you are self employed as a DBA, you have to pay this Social Security tax twice. Once on your behalf, and once on your company’s behalf.

I don’t want to get too into it, but you can read more about the differences of an LLC versus and DB here, and more about the tax advantages of an llc here.

This is why you want to form an llc. With an LLC (Limited Liability Company) you are able to avoid paying these social security taxes. You are now a “member” of a corporation, so you are able to receive “shareholder distributions” which are a loophole in which you can take money out of the company without having it subject to these payroll taxes. Only what you decide to issue yourself as a paycheck are subject to these taxes.

On top of this advantage, you are protected as the business is now its own entity, meaning that it is no longer associated with you. You cannot be sued if someone in the company gets hurt, only the company and its assets can be challenged.

Nowadays, you can file these online. When my brother did it, he paid a lawyer and it costed about $1000. I used www.legalzoom.com and formed an LLC for $99 for their service plus the state filing fee which is unavoidable and it only ended up costing about $300. This may seem like a chunk of change but I personally do not think it is even an option not to use it, I had to pay $5000 in taxes my first year because I was a DBA.