Starting a business...?

[Pyzik]

I know there are a lot of entrepreneurs and business owners here on this site and really couldn't think of a better forum (that I frequent) to ask.

I've decided to get my FFL (for grip work and smithing reasons, not sales at this time) and get see how doing this as a side job will go. I've got a possible "partnership" with a pretty busy shop in the works.

Can you guys give the the short and sweet of a benefits of an LLC vs something like a DBA or fictitious business name?
I am thinking the former is the smarter move. Would like to keep things separate, especially getting an FFL.

Problem with the LLC is paying myself other than end of year profits. Making myself an employee sounds like a PITA.
OR can my wife and I each hold 30% of the LLC and pay ourselves say monthly with 30% profits, leaving the business with 40% for expenses, ECT? Then I get around employment taxes, ect.

Or should I leave the wife completely out of it and put the money in to a joint account where she has access?

Ugh.

It's starting to look like I need to talk to a pro.

[Dstrbdmedic167]

John would be a good one to talk with on this naturally. I'm sure several others here will get you in the right direction.

[alamo5000]

It's not really hard. Don't stress. You still though might want to talk to a tax guy so that you know what to do on that front before you get started.

Basically an LLC shields all your personal property from litigation for business related things. Say you sell something to someone and they have an accidental discharge and that someone tries to sue because you sold them a box of ammo 4 months ago... an LLC will limit the liability to just what the LLC has under it's name. Hence the term "Limited Liability".

For gun related stuff I don't know why you would do it any other way especially if there is even the remote possibility of you expanding operations in the future to include other stuff.

Yes you can pay yourself a salary. That's how it works. All the left over profits at the end of the year are sent to you or are reinvested in the business. Whichever. It's treated more or less like a dividend payment.

[DutyUse]

Alamo beat me to it. He's spot on. No reason to do it any other way

[WHSmithIV]

Yep. Setting up a LLC is the way to go and it doesn't cost a lot either. You can pay yourself or not - that's up to you since you own the business. Additionally, the business can also owe you money. For instance, if you personally pay bills for the business like a phone or electric bill, the business then owes you that much money. If the business can't afford to pay your salary for a month, the business owes it to you later. In the case of money you personally put in then get back because the business didn't have enough, that is not income since it's repayment of debt.

Just a note on the FFL license - you'll need to apply for a Type 1 FFL license for the business you'll be doing. Note that the FFL license is assigned to you personally and though it will have the name of the business on it, the licensee is the person, not the business.

[UWone77]

Had an LLC for a few years, not in the firearms game. Basically the LLC provides another layer of protection, so someone can sue you personally in the course of running your business, they'll have to sue the LLC. This works well if you have to close it down and you owe people some money. However, if you're a new business, landlords and vendors you open big accounts with, will want a personal guarantee, so you're personally on the hook.

I'd go with an 07 and SOT if you don't plan on doing too much business at first.

[toolboxluis00200]

I try two times and I fail :( so I have no advice for u

[UWone77]

I try two times and I fail :( so I have no advice for u

3rd time is the charm!

[Pyzik]

I knew you guys would have some info!


Yep. Setting up a LLC is the way to go and it doesn't cost a lot either. You can pay yourself or not - that's up to you since you own the business. Additionally, the business can also owe you money. For instance, if you personally pay bills for the business like a phone or electric bill, the business then owes you that much money. If the business can't afford to pay your salary for a month, the business owes it to you later. In the case of money you personally put in then get back because the business didn't have enough, that is not income since it's repayment of debt.

Just a note on the FFL license - you'll need to apply for a Type 1 FFL license for the business you'll be doing. Note that the FFL license is assigned to you personally and though it will have the name of the business on it, the licensee is the person, not the business.

Paying myself (correctly) seems to be of the most concern to me right now. I thought I read that my business holds the FFL, not me personally. Hmm. Does that then require me to keep my personal guns on the log (same address for residence and FFL)?


Had an LLC for a few years, not in the firearms game. Basically the LLC provides another layer of protection, so someone can sue you personally in the course of running your business, they'll have to sue the LLC. This works well if you have to close it down and you owe people some money. However, if you're a new business, landlords and vendors you open big accounts with, will want a personal guarantee, so you're personally on the hook.

I'd go with an 07 and SOT if you don't plan on doing too much business at first.
I was leaning toward an 01 for now... You think I should go SOT? That's quite a bit more money annually. Really for a while I think all I'll be doing is grip work and transfers (here and there).

[UWone77]

I knew you guys would have some info!



Paying myself (correctly) seems to be of the most concern to me right now. I thought I read that my business holds the FFL, not me personally. Hmm. Does that then require me to keep my personal guns on the log (same address for residence and FFL)?


I was leaning toward an 01 for now... You think I should go SOT? That's quite a bit more money annually. Really for a while I think all I'll be doing is grip work and transfers (here and there).

The advantage of the 07 over the 01 (with an SOT) in our line of work is in dealing with producing a SBR. As an 01, You cannot take a lower and put a 10 inch upper on it any more than anybody else. I realize you're just doing grips right now, but if you decide to go from an 01 to an 07, you cannot just swap over, you have to reapply.

Having the SOT comes with some expense: $500 a year because you'll probably gross under $50k. Over $50k and it costs $1000 a year. But it usually means that transfer of NFA stuff can happen a lot faster

[Pyzik]

The advantage of the 07 over the 01 (with an SOT) in our line of work is in dealing with producing a SBR. As an 01, You cannot take a lower and put a 10 inch upper on it any more than anybody else. I realize you're just doing grips right now, but if you decide to go from an 01 to an 07, you cannot just swap over, you have to reapply.

Having the SOT comes with some expense: $500 a year because you'll probably gross under $50k. Over $50k and it costs $1000 a year. But it usually means that transfer of NFA stuff can happen a lot faster

I was thinking about it first and it would be a big plus. But ended up talking myself out of it. I'd need an engraver or pay someone to engrave still, ect correct?

Looks like I've got even more planning to do. :D

The other thing is it seems like there is a lot of competition in my area (or maybe that's because I am "in the know" and know who most everyone is in my area).

[WHSmithIV]

[QUOTE=Pyzik;112653]I knew you guys would have some info!



Paying myself (correctly) seems to be of the most concern to me right now. I thought I read that my business holds the FFL, not me personally. Hmm. Does that then require me to keep my personal guns on the log (same address for residence and FFL)?

Nope - your personal guns that you own before getting your FFL do not go in the log book. Any that you get after you get your FFL do go in the log book because you have to receive them. Initially, I don't see much point in getting the SOT - it can be added later. Also, the type 7 FFL is a manufacturing FFL license (my local FFL who does my transfers is a type 7 and also can do NFA transfers). However, he does manufacture ammo for sale. I don't see that you would need more than a type 1 FFL license for what your business plan is currently. The SOT would cost you $500 a year. In order to justify it, you'd have to make more than that dealing with NFA items and that would be for the purpose of reselling them. The SOT class 3 is a dealer in NFA items. As a gunsmith situation you could still receive the firearm, do the work on it and send it back to it's owner. That would not require the SOT as far as I understand it (I'd check with the ATF on that though to be sure). You would not be able to transfer NFA items like SBR's without the SOT but, lets say you charge $25 for a transfer and perhaps even $50 for a NFA transfer - you'd have to transfer 10 SBR's per year just to pay the annual fee for the SOT. You would not need a type 7 FFL to build custom AR's and sell them either (except SBR's - and then you'd need the SOT also). You would need a type 7 FFL to manufacture lower receivers. Buying a lower receiver, building it into a rifle then selling it is not manufacturing a firearm because the lower receiver IS the firearm. Building the AR on the stripped lower receiver is actually gunsmithing. You could go ahead and get the Type 7 FFL instead of the Type 1 and get the SOT later if you decided you wanted it.

Paying yourself isn't a problem. Your business can only pay you if it has cash to do so. If it doesn't have the cash to pay you, it can owe it to you. When you start the company, you are starting it with your own money - i.e. money that you have already been taxed on. That money the business can simply pay back to you later on with a nominal interest. After your startup investment is returned to you is when you would start having your business pay you income or you take the profits from it as income. If you choose to take the profits, you can do that quarterly instead of annually.

This is my 4th business. My last three were in Finland and the Finnish tax system is a lot more complicated than here in the US. When my wife and I decided to leave Finland, I simply closed my shop there. None of my companies ever failed. They were opened for specific reasons and two of them were incorporated companies. The hardest part of owning a business and / or being in business for yourself is actually making enough money to live on.

[Pyzik]

Will, that's a lot of helpful info! Thanks!!

For the transfer of personal guns, I can keep them off the log if I purchase them in person as used firearms though correct? If they are for my personal reasons and have nothing to do with the business?

This is where I am really leery of getting my FFL I want to make sure there is a bold line in the sand between MY stuff and the business' stuff.
All but TWO guns in my house was purchased by me from an FFL (happen to be both my AKs). ALL of the other guns were purchases used and that's the way I like to try and keep it.

I just want to make sure there is no confusion on what the company owns and what I own.

[SINNER]

Does your state require a physical address zoned for commercial use? I know that is the case in MD and I heard many other sates are following that lead.

[DutyUse]

I try two times and I fail :( so I have no advice for u

Don't feel bad, something like 80% of all small businesses fail. Regardless of planning, resources, or competitive advantage. 2-3 days a week I have to go and put in free labor so the small business my brother and I started can stay afloat.

[Pyzik]

Does your state require a physical address zoned for commercial use? I know that is the case in MD and I heard many other sates are following that lead.

No. And form what I am reading the city I live in only regulates against selling goods out of your home. I will only be providing a service so I am good.

ETA: Also, I cannot place a business sign on my home (wouldn't want to anyway), cannot require parking space, cannot have tools that would not normally be found in a home (wtf?).

[SINNER]

I have a 36x40 shop on my property over 300' from any dwelling and MD refuses to allow any FFL to occupy a residential area. Manufacturing has all kinds of other restrictions including distance to schools and churches so even many commercial areas it's not allowed. I heard the ATF was adopting standards nationwide following that model.

[WHSmithIV]

Will, that's a lot of helpful info! Thanks!!

For the transfer of personal guns, I can keep them off the log if I purchase them in person as used firearms though correct? If they are for my personal reasons and have nothing to do with the business?

This is where I am really leery of getting my FFL I want to make sure there is a bold line in the sand between MY stuff and the business' stuff.
All but TWO guns in my house was purchased by me from an FFL (happen to be both my AKs). ALL of the other guns were purchases used and that's the way I like to try and keep it.

I just want to make sure there is no confusion on what the company owns and what I own.

If you purchase a used gun from someone for yourself, it wouldn't go in the bound book. Anything that you bought out of state though and had shipped to you (used or not) would go in your bound book because you'd have to provide a copy of your FFL license to the FFL shipping it to you. However, you can certainly buy personal firearms for yourself with your FFL license. You would sign them into your bound book then sign them out of your bound book as transferred to you personally. I would check for sure what your proper paperwork path is but, you certainly can buy personal firearms for yourself as a FFL holder.

[toolboxluis00200]

3rd time is the charm!

I all ways wanted to do R&D for a gun company I came up whit a very unique suppressor

[Txfilmmaker]

I all ways wanted to do R&D for a gun company I came up whit a very unique suppressor

Don't quit trying, Luis! :)



Sent from my iPhone using Tapatalk

[toolboxluis00200]

Don't quit trying, Luis! :)



Sent from my iPhone using Tapatalk

I guess I better hit the drawing board

I want to do a 22lr a 556 and 30 cal :P

[GaSwamper]

As far as salary goes just remember you can file a loss for up to 7 years :confused: Lots of expenses out there.

[Dstrbdmedic167]

As far as salary goes just remember you can file a loss for up to 7 years :confused: Lots of expenses out there.

From what I understand and it may vary from state to state but you can only show a loss for 3 years then it's just a hobby in the eyes of the tax guys...

[GaSwamper]

From what I understand and it may vary from state to state but you can only show a loss for 3 years then it's just a hobby in the eyes of the tax guys...

It probly does I guess, or it may have even changed. That's what the man told me but it was several years ago.

[WHSmithIV]

From what I understand and it may vary from state to state but you can only show a loss for 3 years then it's just a hobby in the eyes of the tax guys...

I'm not sure but I think you can post a loss for 5 years. However, posting a small profit is not a loss. Even a profit of a few hundred bucks is still a profit and it's too small of a profit to be taxable. Last year I didn't claim some of my normal deductions because if I had claimed them the loss would have been greater than I wanted.

[Dstrbdmedic167]

I'm not sure but I think you can post a loss for 5 years. However, posting a small profit is not a loss. Even a profit of a few hundred bucks is still a profit and it's too small of a profit to be taxable. Last year I didn't claim some of my normal deductions because if I had claimed them the loss would have been greater than I wanted.

Again it may vary from state to state. Our CPA told us this but may not be the same for everyone. YMMV...

[UWone77]

If you don't show a profit after 3 years, it's a hobby. Your accountant will tell you the same. Otherwise you have a hobby, and not entitled to those business deductions.

[Pyzik]

I don't think I should have a problem posting a profit. Won't be enough to be a real job but that's not my intention now anyway. Just to suplement income.

Hoping to get the ball rolling Tuesday.

[UWone77]

Just remember John Hwang's number 1 rule when running a business.

Keep your expenses low. I can't stress how true that is. If you can't pay for it in cash, you can't afford it.

[BoilerUp]

If you don't show a profit after 3 years, it's a hobby. Your accountant will tell you the same. Otherwise you have a hobby, and not entitled to those business deductions.

Although that is the rule of thumb, it is a little more nuanced than that. If you don't show a profit in 3 out of 5 years you run the very real risk of triggering an audit and may have to prove that you are trying to run a legitimate business. Many small business owners feel it's better to pay some taxes on profit they didn't really receive than to save the taxes and trigger an audit. Here is a decent write up: http://www.bizfilings.com/toolkit/sbg/tax-info/fed-taxes/profit-motive-required-to-claim-business-deduction.aspx

[UWone77]

Although that is the rule of thumb, it is a little more nuanced than that. If you don't show a profit in 3 out of 5 years you run the very real risk of triggering an audit and may have to prove that you are trying to run a legitimate business. Many small business owners feel it's better to pay some taxes on profit they didn't really receive than to save the taxes and trigger an audit. Here is a decent write up: http://www.bizfilings.com/toolkit/sbg/tax-info/fed-taxes/profit-motive-required-to-claim-business-deduction.aspx

You're right, I should have been more clear. 3 out of 5 is a good rule of thumb, and my accountant reminds me yearly.

[Dstrbdmedic167]

This thread just tells me I need to start a LLC for my photography... and that I still want a FFL...

[Pyzik]

Just remember John Hwang's number 1 rule when running a business.

Keep your expenses low. I can't stress how true that is. If you can't pay for it in cash, you can't afford it.
I try REALLY hard to live my personal life that way.

Dave Ramsey!

Wife and I killed all CC debt a couple years ago, got our emergency fund set up. Then 3 months income.
Struggling building past that once the kid came, and now she's part time to spend more time with the kid.

But that's just driving me more to try and make something. Another reason I went back to a job I don't really like but has the opportunity to get us comfortable.

Anywho, business would have very low over head, at least to start.

[WHSmithIV]

I also file as a farm though for raising sheep or goats... so I pretty much just break even.

[mustangfreek]

Cool deal pyzik!!

I have thought hard about getting one/applying and doing some stuff and more..but its just a pipe dream for me..Sounds like you got a good start on things.update us on how/if this works out for ya.

[DutyUse]

Just remember John Hwang's number 1 rule when running a business.

Keep your expenses low. I can't stress how true that is. If you can't pay for it in cash, you can't afford it.

Oh so true