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When people start their businesses, they ask me the following questions:
- Should I set up an LLC?
- What type of business entity structure should I set up?
- What about taxes?
- Will an LLC provide me protection if I am flying?
You need to understand that there are two issues ALWAYS in play here: liability and tax savings.
Liability
If you are flying the drone as a pilot, you are always going to be on the hook as the pilot. Having an LLC means you, as the pilot, and the LLC both get sued.
If you are hiring pilots and they are flying, THEN you want to start thinking about having some entity like an LLC or corporation be the operating business that hires the pilots and does the operation. There are other forms of entity structure like limited liability partnership (LLP), etc. Ultimately, you want to connect with a business attorney in your state to answer the exact specifics. For most of my clients, they choose to go the corporation or LLC for liability protection.
A doing business as (DBA) name does not provide any liability protections.
Tax Savings
The other major issue is tax savings. Corporations can be taxed under subchapter S and this provides for significant savings if done correctly. If you are setting up an LLC, you need to figure out if you are going to set up taxing as subchapter S or just as a pass-through. The downside to passthrough is ALL of your income is taxed with self-employment tax.
You also want to talk to an accountant or tax attorney in your state to see if there are any restrictions on STATE taxes or exemptions you can use for your operation. Some states have tax exemptions for certain types of entities. You need to make sure that any form of entity structure you select does NOT jeopardize the exemption and cost you more in taxes.
Ultimately, I highly suggest you reach out to a tax and business attorney to answer these issues. A simple 30-minute phone call can save you a lot of trouble. That attorney can also help you set up the business and provide you with valuable documentation to keep your business working so it looks like a legitimate business (in the event you are sued and the plaintiff’s attorney is trying to piece the veil and get at your personal assets).