The COVID-19 outbreak has brought stress and financial uncertainty for many, but it may also be a time for innovation and creation. Whether you find yourself newly unemployed, unsure about your future with your employer, or simply have more free time on your hands, this may be the time for you to start your own limited liability company (LLC). There are a number of benefits to starting an LLC in this environment and resources available to get you started during this challenging time.
Businesses around the world are struggling and no one knows for sure when the economy will bounce back. Many businesses are laying off employees or implementing hiring freezes, making it difficult to find new work. Even if you currently have a job, you might be less certain about your future with the company. Starting your own LLC is your chance to be proactive about your financial future and build something of your own. While every business venture has its risks and likely will not be immediately profitable, it provides you with structure and focus instead of waiting for other businesses to start hiring.
Similarly, if you recently lost your job, creating an LLC will provide you with something to put on your resume during a gap in employment, while also gaining experience and making connections in your field. Businesses that may not yet be ready to hire an employee may be more willing to pay someone as an independent contractor. This may give you the chance to form a relationship with a company that might hire new employees in the future.
The coronavirus outbreak has forced many companies to change quickly or go out of business. This essentially creates an even playing field for new and existing companies, as it can be difficult for an existing company to changes its service models or products while adopting new technology. As a new company, you can tailor your goods and services to the current reality.
For instance, while established businesses may struggle with the transition to remote services and training a telecommuting workforce, you can begin your company entirely remotely and take advantage of the newest technology. Similarly, the needs of consumers are rapidly changing. Consider what goods and services are currently in need, like hand sanitizer, medical supplies, and online education, and use your LLC to serve these needs.
As a result of recently passed legislation, you may have financial resources available to you to help you start your business. Many of these are available due to the Coronavirus Aid and Relief Act (CARES Act) and the Consolidated Appropriations Act, passed by Congress to ease the financial strain caused by the outbreak. For instance, if you, your spouse, or dependent was diagnosed with COVID-19, or suffered a financial hardship due to COVID-19, you might be allowed to take up to $100,000 out of a retirement plan without penalty.
In addition, many taxpayers received stimulus checks for $1,200, and a second check for $600. If these amounts are not being used for basic necessities, consider using this money as your first step to building your business.
You may have noticed that the government has created a number of programs offering financial assistance to small businesses. However, be aware that most of these programs require that the business existed before the start of the program. Unfortunately, they are typically not available to new businesses.
Many people decide to form an LLC due to its tax benefits, including pass-through taxation and a 20% pass-through tax deduction on your personal return. In addition, the CARES Act provides additional tax help for small businesses. The new law allows you to fully deduct net operating losses, which can save you taxes on your personal tax return, especially as new businesses frequently operate at a loss in the first year.
As a business owner, you are responsible for paying self-employed taxes, which include federal income tax, Medicare tax, and Social Security tax. The CARES Act delays the due date for estimated tax payments, and also reduces the amount of tax due. To learn more about these changes, see Nolo's article, IRS Makes Changes to Estimated Taxes for the Self-Employed in Response to the Coronavirus.
In starting your own business, you have options in determining what type of business structure to form. An LLC is a popular choice for new companies in any environment. In addition to the tax benefits mentioned above, an LLC provides limited liability, meaning you will not be personally liable for the debts and obligations of the business. In addition, you are offered a great deal of flexibility in how you want to manage the company and split profits and losses among any owners.