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Applying for Business license? need advice

 
                    
Posts: 47
Location: Bainbridge, Wa
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Hi!
I am a farm manager, starting a farm this year, which consists of multiple properties within 3 miles of eachother.
Now my question is based on the requirements to sell food.  I will be selling to restraunts, markets, and off property (which i know doesnt require anything).  I am thinking about getting an LLC based off watching two friends get one last year and having a secure success, but I am not sure if that is overkill.

I have made a Tshirt company before, but it's not a concern about getting sued because interns and animals pee or crap without my knowledge near food.  So some security and professionalism is my goal.

Anyways I'd like to hear how you other farmers deal with the distribution of food and keeping track of the paper work.

Thank you for your time,
  Russell

ps. www.oldmillcenter.net
 
steward
Posts: 7926
Location: Currently in Lake Stevens, WA. Home in Spokane
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Every state (and city, county) has its own requirements, so a generic answer will do no good here.
Several states charge sales tax on food, which certainly complicates selling a tomato or apple.
In a completely rural environment, these requirements may not be as strictly enforced as they would be in an urban area (where the customers are).  If you will be dealing with markets and restraunts, you will need to have all of the proper permits, licenses, etc in order before they will even speak to you.
I do not feel an "LLC" adds any professionalism to a business.  It will certainly complicate your tax issues.  I would strongly consider a CPA if you want to go the LLC route, and contrary to the "Corp" status you may think it gives you, it offers NO reduction in personal liability (especially if you are the sole proprietor).

Check out local rules/regs.  They differ greatly from place to place.
 
Posts: 123
Location: Northern New Mexico, USA
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LLC stands for Limited Liability Company, and it does indeed give you some protection of your personal assets. It can be a disregarded entity for tax purposes, so all you'd do is file your normal Schedule F with your 1040, which doesn't complicate your taxes much.

It is important to set up the LLC properly so it works. My attorney gave me what he called the rock bottom price which meant discussing everything over the phone and him doing the filings, for $600.

We carry a two million dollar product liability policy in case someone claims they got sick eating food we produce. The major corporations are now demanding a five million dollar policy, but I've been getting a waiver the past few years on that. My $2MM policy is $644 a year and is based on gross sales.

The way we keep track of income and expenses is using Quickbooks. We enter invoices for all restaurant, supermarket sales. For farmers markets we enter a lump sum cash sale at the end of the day. Once you're selling to a few locations on credit terms, accounting software becomes essential.

 
                    
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For keeping track of income and outgo, I use a spreadsheet. Might switch to an accounting package later, but for now, spreadsheets work for me.

I tried using some project management software to handle work flows, but the package I had was designed for cubicle drones; they have 5 day weeks while my plants grow in seven day weeks. I was able to develop a work-around, but it was a kludge.


John Polk wrote:
It {an LLC} will certainly complicate your tax issues. 



How so? I am not an accountant or tax lawyer, but I recently researched and formed an LLC, and according to the IRS, if there is a single person who owns the business, it is treated like a proprietorship (a pass through entity) and the person files the same schedules that they would otherwise. That is typically schedule C (profit or loss from business), schedule SE (self employment tax) and possibly schedule E (Supplement income or loss). An LLC that is a partnership is treated like any partnership for tax purposes as I understand it. 

LLCs have the benefit of not being subject to any corporate taxes (no 'double taxation') - if a permie proprietor or LLC owner makes $40,000 of sales, has $10,000 in expenses, then they pay tax on the net of $30,000.  If a corporation were used to generate that same net $30,000, they might first have to pay a tax on it as corporate profit and then the person would pay income tax on what is left.  More or less might end up going to the corporation owners (depending on a thousand accounting variables that might zero out the corporate tax) but that would not be less complicated - a corporation would create an additional layer of forms to fill out.

Here is an IRS page outlining some of the characteristics of an LLC:
http://www.irs.gov/businesses/small/article/0,,id=98277,00.html
 
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An LLC is actually a Limited Liability Company, no corporation. I would suggest www.leagalzoom.com to form your LCC if that's what you decide to go with. I did mine for $300 for everything I think. Attorneys will charge you a lot of money to do this! NM grower got a great deal considering he went with an attorney. I was being quoted $1500. I strongly recommend legal zoom, their customer service is great.
 
John Polk
steward
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In a lawsuit situation, a good attorney could easily waltz through the façade of an LLC.
 
steward
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Location: Carnation, WA (Western Washington State / Cascadia / Pacific NW)
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Chris Stelzer wrote:
An LLC is actually a Limited Liability Company, no corporation.



Whew, I'm glad someone cleared that up - thanks Chris.

LLC's can be one of three types:
LLC sole-member - works as a sole-proprietorship (use a schedule C with your 1040 taxes)
LLC corporation - works as a corp (usually an "s corp" - uses form 1120 with your 1040 taxes)
LLC partnership - not as common, more for real estate properties, etc.

Getting and keeping a license as an LLC requires a little bit more paperwork and fees than as a straight sole proprietor with no LLC. And then LLC's that are corporations have more requirements than the sole-member LLC's.

Jonathan_Byron wrote:
LLCs have the benefit of not being subject to any corporate taxes (no 'double taxation') - if a permie proprietor or LLC owner makes $40,000 of sales, has $10,000 in expenses, then they pay tax on the net of $30,000.  If a corporation were used to generate that same net $30,000, they might first have to pay a tax on it as corporate profit and then the person would pay income tax on what is left.  More or less might end up going to the corporation owners (depending on a thousand accounting variables that might zero out the corporate tax) but that would not be less complicated - a corporation would create an additional layer of forms to fill out.



This part could use some clarification. Only the sole-member LLCs are not treated as corporations. And, while it seems that corporations have a double tax, if you're paying yourself payroll through the corporation (which is actually required and if you don't already have employees, be aware that this is an additional time and overhead expense to do), you actually save on taxes.

Using the $30,000 profit scenario, in a corp, the $30,000 "income" would be paid this way:

$27,868.09 gross wages (actual pay would be less employee's portion SS/Medicare & any withholding)
+$ 2,131.91 employer SS/Medicare taxes paid to IRS (along with employee taxes from above)
$30,000 total cash paid out.

So corp income would be:
$40,000.00 sales
-$10,000.00 expenses
-$27,868.09 payroll
-$2,131.91 employer payroll taxes
$ 0.00 corp profit

Owner income is $27,868.09 NOT $30,000 which means less income that rolls up to the form 1040.

So if you do the corp thing right, most folks pay less in taxes. Though for smaller businesses, Jonathan is right the additional annual filing requirements and the payroll issue create additional time and expense that might eat up any little bit of tax savings.

 
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