LLC for Comp team/ BBQ sales???

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

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.

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...

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

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.

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.

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.

Cloudsmoker said:

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

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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

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-a-For-Profit-Endeavor?

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.

dmprantz said:

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?"

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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.

CBQ said:

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.

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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

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.

Forming an LLC also mean more expensive tax prep each year. might be as much as $300 more a year even if you do it yourself.

dmprantz said:

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

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$50.00 in Michigan to incorporate or LLC and then $25.00 per year plus your taxes (of course there are other steps needed but to set it up)... The best advice I would give is ask a lawyer and/or and accountant. We can all tell you what we have gone through but when dealing with this stuff go to the experts, you will be safer in the end...

I made Eagle River Barbecue an LLC. I do comps and a little catering. I just had to download the form off the secretary of states website, fill it out and send them $120. I then got my EIN from the feds (free). Once I got my paperwork from the state I was then able to open my bank account. So now when a comp gives me a check made out to Eagle River Barbecue, I can deposit it.

For taxes, I use Turbo Tax Home and Business. It costs about $75 a year. Just make sure you keep all your receipts and keep track of mileage driven for business.

I got my insurance through state farm and it costs me $325 a year for a $1Mil per incident liability policy and it also covers my trailer/cooker, misc equip and some other misc items. I know many folks go through Auto Owners for their policy.