Comments on: A new business

Question: A new business

mateuslee — Fri, 24 Aug 2007 06:00:49 -0800

Should I register my "company"? So I am an EU/US citizen who is working in the EU for a company. I provide a variety of services which more-or-less fall under the aegis of "consultation" (though this sound inappropriately hip). For tax reasons, the company asks me to submit a invoice from the US which they pay in full direct to my US account.

I asked a US accountant how to set up a business, and he said that I could just put DBA after my name (DBA = Doing Business As): Smith DBA Consultations International.

So, as I wasn't earning much money at first this was fine. Now, however, I'm earning a great deal more (at least by my student standards).

I'm wondering about the legality of my situation. as I do not really have a company, technically (though apparently the DBA-thing is legal).

What situation do you think would be in the best interest of me and this private company?

By: curiousleo

curiousleo — Fri, 24 Aug 2007 06:13:26 -0800

Yes DBA thing is totally legal.
For now I think it would make your life whole lot easier if you just use DBA method.
Although it will be better to open a separate business bank account with your DBA. The bank will let an individual do this all the time.

As long as you report your income from DBA in your income tax and take necessary tax benefits .. You should be fine.

The whole concept is what is called "Sole Proprietorship".. google it and find out more.

I hope your income is few thousand a year... if it is more.. you are better off setting a Limited Liability Company or LLC or S-Corp for your self. This you will need Good CPA.. but it doesn't cost too much ....

Setting up yourself as a business is not too hard in U.S....

By: mateuslee

mateuslee — Fri, 24 Aug 2007 06:16:28 -0800

Thanks for the tips CuriousLeo. I estimate my income for this year may be around US$35,000. Is DBA better than LLC? Which is preferrable?

By: BigLankyBastard

BigLankyBastard — Fri, 24 Aug 2007 06:30:27 -0800

An LLC or S-Corp are simple corporate entities which you can set up to legally separate your personal finances from your business finances. The most common argument given for incorporating is that it provides a level of liability protection and debt protection in the event things go poorly for your business or you get sued.

With an S-Corp or LLC, the rumor goes, your business gets sued and potentially loses all its assets, but you keep your house and car and personal savings.

With a sole proprietorship, there is no distinction between personal and business, and creditors will be free to go after your personal assets.

IANAL IANAAccountant, but this is how it was explained to me when I incorporated. The incorporation process was surprisingly hassle-free and low-cost. If you're generating the sort of revenue you name above, there is no question in my mind you should incorporate. Find a decent tax accountant to help you through the process.

As far as DBA goes, I had to register my DBA name with my home state to make it official. Later, I incorporated under the DBA name, as an S-Corp.

By: mateuslee

mateuslee — Fri, 24 Aug 2007 06:33:30 -0800

OK, I'll call my accountant and see about incorporating, though I'm not producing anything that could get me sued. Also, I fear incorporating will end with me paying more taxes...

By: curiousleo

curiousleo — Fri, 24 Aug 2007 06:35:40 -0800

wow... that is not a chump change...
You will definately need to be LLC.

I had LLC setup through my CPA few years ago.

Very simple one hour thing.

Create three or more business name.. this could be your name also (i.e. Mateuslee Consultancy, LLC or M LEE Company, LLC, or International Mate Group, LLC or etc.. etc...)

The CPA will have you sign few forms to do a company name search. He will make forms to send and register to State agency. This cost me about $300 or so... few more bucks for registering to state government.

You will get a Business number (basically social security number for your business) This number will be used to open a business bank account and credit card... You probably want to put some money in the bank account to start...

After that your own company pays you the share or salary to yourself. Just be sure to save any receipts, invoices, contracts so.. that you can do taxes in the year end.

It is important to separate your personal income and expenses from the business bank account.

It is kinda funny having your own one man company.. but this is done all the time to save on taxes and save your self from any legal issue in the future...

By: curiousleo

curiousleo — Fri, 24 Aug 2007 06:38:17 -0800

When you incorporate or LLC.. you will pay much less taxes in the end (because you are business... you get all the benefits of business tax code)

personally, S-Corp seems little too complicated in daily life... due to extra rules you are suppose to follow.

LLC does very similar thing except it is created for some one like yourself who are in business by one self or few.

By: curiousleo

curiousleo — Fri, 24 Aug 2007 06:41:02 -0800

By the way.. getting sued .. even for consulting.. is definately possilbity.. so you do want to protect yourself.

Beside, some of your living expenses, cars, office, computer or any other things you spend can possibly be deducted in taxes as a business use.

Some people are more liberal wih the "business use" thing... but for $35000 income, I'll say.. go for it..

By: mateuslee

mateuslee — Fri, 24 Aug 2007 06:41:25 -0800

The advise so far is very much appreciated. I am sold on the idea. If anyone else has any tips about registering, ideas, suggestions or any good reason not to do this, feel free to chime in.

By: mateuslee

mateuslee — Fri, 24 Aug 2007 06:44:17 -0800

But in the meantime, is accepting a US$12000+ payment on "Smith DBA Smith Consultancy" to my personal bank account legally problematic? Perhaps better to wait if only for taxation-related reasons...

By: curiousleo

curiousleo — Fri, 24 Aug 2007 06:54:59 -0800

That 12000 thing.. not a problem... as long as you report this as income when you do your TAX.

As long as the payment says your name.. the DBA could be anything you want it to be.. The bank will not care if they don't have your dba name in the data.

If you don't report the 12000 in your irs in your personal income tax, chance are nothing may happen... especially for one time payment.. but if it goes on for few more times a year... YOU will get red flagged.

This is why you will want the LLC or s-corp asap...

For now .. that one time 12000 should be o.k. but again.. report report report to irs on your tax returns.

By: grouse

grouse — Fri, 24 Aug 2007 06:57:20 -0800

As far as using DBA goes: In some states, such as California, you must register your fictitious business name before doing business. But you're doing all your business overseas, so it would depend on the laws of the country you are doing business in.

If you decide to incorporate you may need to register your corporation in the Netherlands as well. You would need to if your "U.S. company" were carrying on business in Great Britain. I don't know the laws in the Netherlands or other countries you may do business in, but you need to investigate this.

If you go the U.S. corporate route, the tax situation is also going to be complicated. I think you will need help from a Dutch tax professional who knows about overseas businesses doing business in the Netherlands.

You may want to investigate the possibility of a Dutch corporation instead.

By: wackybrit

wackybrit — Fri, 24 Aug 2007 07:05:01 -0800

But in the meantime, is accepting a US$12000+ payment on "Smith DBA Smith Consultancy" to my personal bank account legally problematic?

Perhaps there's some US culture regarding banking I'm missing here (wouldn't surprise me) but the comments regarding $35k being a lot of money for a sole proprietorship and the comment above surprise me. I've done well into six figures US business this year as a sole proprietor into my personal bank account this year as an EU citizen and it's no hassle as long as you can separate it out if the taxman wants to look through and as long as you set enough aside for taxes.

By: mateuslee

mateuslee — Fri, 24 Aug 2007 07:15:28 -0800

Grouse, Thanks for the tips. I will probably nix the whole DBA registration bit and just get the LLC.

As for becoming a Dutch corporation, this complicates the situation significantly for all parties here... Must be based in the US, no question about it.

ThANKS!

By: grouse

grouse — Fri, 24 Aug 2007 07:38:23 -0800

OK. If you start a U.S. LLC that appears to do all its business in the Netherlands, you will have to follow these requirements. You'll also need to investigate income tax to be paid to the Dutch government.

You probably have to charge your client VAT, regardless of the structure of your business or whether you claim it is in the U.S.

By: mateuslee

mateuslee — Fri, 24 Aug 2007 07:49:28 -0800

Grouse,
This is a good point! But the first paragraph:

There are foreign companies where the actual business takes place almost entirely within the Netherlands, without any actual connection with the country of incorporation

makes it seem that I can avoid trouble - I am, afterall, an American. I think this qualifies as "actual connection". I may even have an employee or two in the US.

Or do you think I'm playing with semantics?

By: grouse

grouse — Fri, 24 Aug 2007 07:54:42 -0800

Yes, I think mere citizenship is not enough to be an "actual connection." It is about where the business takes place, not the citizenship of the employees.

If you have an employee in the U.S. it might be different. But I think you'd still be on dicey ground if you were running the business from the Netherlands and didn't have a proper office in the U.S. You really need qualified Dutch advice. You can try to look at the Dutch law, but I really can't since I don't know Dutch.

By: curiousleo

curiousleo — Fri, 24 Aug 2007 10:20:56 -0800

If you want to base your company in U.S...
this should not be a problem... as long as you pay the taxes.

I also stay long in Europe while my LLC is based in States. I have UPS P.O.Box address which is also official address for the LLC. Don't get the U.S. Post PO box.... not for legal reason.. but the UPS ones give you regular street address not like "P.O.Box xxxx"... It is for pure looking like business kind of stuff... beside, a lot of companies will not send or deliver things to P.O.Boxes...

I also have my mails forwarded to Europe.

Now... When I do my taxes.. I report it all to U.S. IRS as some income from foreign and non-foreign... not too difficult...

The guy above said you can have sole prop. with very high income.. technically you can... but at that amount, you are paying higher taxes and taking care of invoices, payments, etc can be hell between personal and business...

ONETHING I am not sure... is if one has to be legally a resident in one of the 50 states.... that you should find out... I kinda assumed if you are a u.s. citizen... it should not matter if you are out side of country doing your u.s self business..

By: JackFlash

JackFlash — Fri, 24 Aug 2007 11:47:43 -0800

I agree with wackbrit, as it applies to the US. There is no problem having a sole proprietorship and depositing checks into your personal account. An LLC is unnecessarily complicated for most simple consulting businesses. If you get above the $120K to $150K range and have low living expenses you can possibly begin to see some tax advantages to an S-corp. Otherwise I wouldn't bother.

By: nax

nax — Fri, 24 Aug 2007 20:00:32 -0800

Some municipalities (Chicago is one) make you register a business alias if you have a bank account under a DBA name. Not sure how it would work given the international aspect here, but check with the city where your US entity exists.

By: nax

nax — Fri, 24 Aug 2007 20:01:26 -0800

Sorry-- the business alias is only is you are not incorporated, but operating as a sole proprietor. If you're incorporated you can call yourself and your bank account whatever you please as far as I know.