One of the main questions asked by Ride Share drivers is "Am I a business owner or not?". The answers is yes. As soon as you signed up to your take people from point A to point B you became a business owner. This has major benefits. However, with those benefits comes liability. That liability is covered in an LLC (Limited Liability Corporation) and this post will help shed a light on why incorporating can help serve you and your new business.
DBA or "Doing Business As" also known as a Sole Proprietorship
A DBA is not a legal entity but a person who owns a business and is responsible for all its debts. The simplicity makes this framework very enticing to set up, however the drawback is your personal assets will not be separated from your business'. Sole Proprietorships are so easy to form many people already are one and don't even know it. There are a few legal and tax implications for sole proprietorships that are important to know.
They are easy to form due to low cost and easy setup
Your income and losses will be taxed on your personal tax return but you will have to file a schedule C & SE along with your 1040.
There may be local business licenses that need to be applied for but the cost is normally small.
The main problem people run into with the Sole Proprietorship is being held personally responsible for all legal issues. Therefore, other frameworks that have legal protection are encouraged.
LLC (Limited Liability Corporation)
This framework is preferred for small and medium business owners. It not only protects a corporation but has the taxation of a sole proprietorship. All income and losses will be reported in income tax returns but the LLC framework keeps the business assets separate from your personal assets. Forming your business as a limited liability company helps significantly cuts down on paperwork compared to corporations and other legal entity types, and helps to present your business as more credible. As a rideshare driver you are protected against liability under an LLC. If you are sued during business hours the LLC assets will be liable, not yours. Rideshare drivers who form an LLC won't need to worry about debt protection of LLC's because they won't be able to get a loan against the value of the LLC.
The most important aspect of LLC's is that if a rideshare driver is found to be negligent their personal assets could be at stake. For example: If you drive your passengers while intoxicated, knowing the brakes in your car are faulty and have not been fixed, or any other kind of wrongdoing that you are aware of and failed to act.
S-Corporations are similar to LLC's and has pass-through taxation. The biggest reason to consider an S-Corporation is the fact that in an S-corporation you can take a wage and become an employee which is a huge tax benefit issue. FICA taxes and other benefits are applicable when actual wages are paid.
If you make $100,000 as a rideshare driver in a year you can pay yourself $70,000. The only income tax you'd pay is on the $70,000 because the other $30,000 is company income. Business taxes, profit tax and state taxes are paid based on profit and profit is a fluid amount. Expenses paid as well as direct and indirect expenditure are tax deductible. With someone who knows what they are doing that $30,000 will be much less for taxation purposes.
Why Incorporate in Delaware?
Over a million businesses—more than 50 percent of publicly traded companies in the U.S., more than 60 percent of Fortune 500 companies, and more than 80 percent of recent U.S. based Initial Public Offerings (IPOs) —are incorporated in Delaware. Companies such as Facebook, Google, and Disney, incorporate in Delaware. Below you will find a few benefits of incorporating in Delaware:
There has no personal income tax for non-residents.
Shareholders, directors and officers of a corporation or members or managers of an LLC don’t need to be Delaware residents.
Delaware LLC owners can act as their LLC's CEO, Treasure, Secretary, President, etc. There are no requirements to name separate people to those posts.
There is no minimum capital requirement to start a Delaware LLC.
Stock shares owned by persons outside Delaware are not subject to Delaware taxes.
Delaware allows non-residents to form (start) an LLC from out of state (all 50 states and world wide) without ever visiting the state, you just need a Delaware-based registered agent.
Delaware has no sales tax.
No SSN required for LLC formation.
Delaware allows LLC owners to remain anonymous.
Form4Free can help
Form4Free offers basic LLC formation for free. Form4Free also provide an array of premium LLCs and premium corporations (INCs) services to their customers. International customers pay the same price U.S. based customers pay, unlike some companies that charge a very expensive fee to international customers.