About Danica Jovic

Danica’s greatest passion is writing. From small businesses, tech, and digital marketing, to academic folklore analysis, movie reviews, and anthropology — she’s done it all. A literature major with a passion for business, software, and fun new gadgets, she has turned her writing craft into a profitable blogging business. When she’s not writing for SmallBizGenius, Danica enjoys hiking, trying to perfect her burger-making skills, and dreaming about vacations in Greece.

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Small-business owners often think an LLC is an excellent way to form a business because it represents an elegant way to divide personal assets from their business entity. A Limited Liability Company - or LLC - means that a business owner cannot be personally responsible for their company’s debts. Flexibility with profit and tax distribution is another vital reason business owners choose this business solution.If you’re wondering how your salary works in this case, our guide will show you the options for getting paid, as well as your responsibilities to the IRS.How To Pay Yourself in an LLCThe answer depends on how you choose to structure your business. An LLC can be owned by one person (a single-member LLC) or co-owned (a multi-member LLC). IRS rules consider an LLC to be a sole proprietorship when there’s just one member and a partnership when there are two or more LLC members. You can also choose to structure your LLC as a corporation. In this scenario, you’ll be an employee in your company and get a regular salary.The three different solutions offer different profit distribution and tax requirements.How To Pay Yourself in a Single-Member LLCAn LLC where you are the only member is a single-owner LLC. The good thing is, as the sole proprietor of your business, the only payments you need to think about are your own. On the other hand, you don’t get a salary or any other type of standard compensation. Instead, as a business owner, you can access the funds on your LLC account and transfer the amount you need to your personal account. This type of compensation model is known as “owner draw.”Unlike a fixed salary, the owners’ draw from an LLC account is a flexible method, as there is no predetermined draw limit or strict payment schedule. You can simply write a check or transfer money from your business account to your personal account at any time you want.How To Pay TaxesThe IRS regulates tax payment for all LLCs, including single-member ones. An LLC with just one member is considered a sole proprietorship and a disregarded entity, which means you don’t need a separate tax return for it. Instead, the LLC-payroll owner reports LLC income as part of their personal income, and that’s what gets taxed. You’ll use Schedule C to report your business earnings and losses on an annual level and submit it with your Form 1040.What Does It Mean for You?First off, you’ll need to pay taxes for everything the company earns, regardless of funds drawn. Secondly, since you’re considered the LLC’s sole proprietor, you’ll need to report self-employment taxes (Social Security and Medicare) to the IRS. The main downside of using the owner draw payment method is the extra skills you need to do your taxes.How To Pay Yourself in a Multi-Member LLCA multi-member LLC is a business entity with two or more members, and the IRS will view it as a partnership. You can also choose your LLC to be treated as a corporation by the IRS, in which case, you’ll be an employee and get a salary. We’ll discuss this option later.Much like in a single-member LLC, each owner of a multi-member LLC can draw money from the company account. There’s one capital or a general-ledger account that shows business expenses, earnings, the capital contributed by each member, etc. And if you’re wondering how much do multiple owners of an LLC get paid, it depends on the partners themselves. Together, you must decide how much each of you should be paid and how the payments will be transferred.There’s a document every aspiring proprietor should have when forming an LLC with friends or business partners. It’s called an operating agreement and shows each member’s ownership percentage, rights, and how much of the business earnings they get. The document can also include information on how to pay LLC members, especially when the company doesn’t make much - or any - money. Paying yourself with a partnership LLC can quickly become a bone of contention, so make sure to agree with the other members on stable payments even when your company doesn’t make profits.How Does Paying Taxes as an LLC With Multiple Members Work?If your LLC is classified as a partnership, each partner must pay individual taxes directly to the IRS. You calculate your tax returns based on each member’s ownership percentage. For LLC income-tax purposes, you need to file the IRS Form 1065 to report your business profits and expenses. After that, you and the other LLC members on payroll must show your share of a partnership income on Schedule K-1.It’s also important to mention that the members of an LLC must pay full taxes on their share of the earnings, no matter how much they draw from the joint account for compensation. For example, if your share in an LLC is 50% and you take only a part of that as an owner draw or even nothing at all, you’ll still pay taxes on 50% of the business earnings.LLC Guaranteed Payments vs. Owner DrawWith owner draw, the proprietors can get funds from the LLC’s business account as needed or set up recurring payments. It’s a good solution, especially if you’re the only owner of your business. However, you need to be careful to leave enough money in the business account for your company to operate smoothly.On the other hand, you can use guaranteed payments. As the name suggests, they are a guaranteed amount that each co-owner receives, regardless of how much their business is currently earning. LLC member compensation should be strictly outlined in the operating agreement, which is why it’s so important to pay special attention when creating this document with your partners. Although an LLC looks like an easy business entity to manage, its owners should be familiar with the fact that managing an LLC comes with certain rules. For example, if you decided to set up a guaranteed LLC payment for each member, you need to do that before you officially form your LLC.Run an LLC - Pay Yourself From a Corporate AccountAnother road you can take when you start an LLC is to structure it as a corporation. You and the other owners will be considered employees, and instead of owners draw, you’ll get monthly salaries. Each member must report their earnings from the LLC as part of their personal income to the IRS. In addition, the company itself has to pay taxes. You’ll need to file different tax forms and schedules, depending on whether your LLC is incorporated as a C-Corp or S-Corp.

By Danica Jovic March 08,2021

Your business name plays a monumental role in how your company is perceived. It’s the first thing your clients interact with, and getting it right is essential for branding success. As such, there are a number of good reasons that can prompt you to change your LLC name.  Sometimes a business name just needs to be modified to become more unique. Other times, the departure of a business partner or changes in the branding strategy may require adjustments. Every business evolves, and if you start experiencing an identity crisis, it’s only logical to consider a business name change. How to change the name of your LLC? Changing a business name can be frustrating, especially if you aren’t familiar with the procedure. For starters, bear in mind that if you have partners, you’ll need their written consent to make any name changes.  Each state has its own rules and regulations when it comes to LLC names. The process of changing your business name can be a little more complicated if your business operates in more than one state. Naturally, changing an LLC name will cost more if you do business in multiple states.  We created a step-by-step guide that thoroughly explains everything you need to know to complete your business name change. Of course, if this is something that you aren’t ready to do on your own yet, there is no shortage of legal services that can help you change your business name. Check available LLC names If you’re trying to figure out how to change your LLC name, the first step involves checking whether your new name is available in the state where your business operates. Business filing agencies allow you to conduct a search on their websites for free, but you can get the same information from the secretary of the state’s website.  It’s important to complete this step correctly and select a name that the state will approve. You cannot choose names that are similar to other LLCs. It’s also important to remember that your requested name can still be claimed by third parties until it’s officially approved and filed with the state. Approve a resolution to change the name of your LLC The next step is to get a written resolution that shows that all owners and members of your LLC agree with the name change. Each business should have an LLC operating agreement, a document that outlines how important decisions are made in the company. In some companies that process only involves two people, while others require all members to vote. Either way, having a proper operating agreement can speed up the entire process. This is also one of the main downsides of an LLC, as it requires strict rules on who makes decisions. In case you don’t have an operating agreement, you can draw up an informal one with other LLC members. Just make sure that you meet the LLC name requirements that vary from one state to another. Amend the name in your articles of organization After you get written approval to change your business name, you’ll need to amend your articles of organization. This is the longest step of the entire process, and you usually need to wait up to 30 days for the state to make the changes. It’s also referred to as articles of amendment or certificate of change. Each state has its own forms on how to change the name of an LLC.  You can easily download the forms on your computer and file them. The filing fees depend on your state of incorporation. Change your business name in your operating agreement The state will inform you about your approved name change by mail. Your registered agent can receive this document on your behalf and inform you when the mail arrives. You’ll then need to make updates to your operating agreement to reflect the name change. IRS LLC name change One of the most important things you need to do after you change your business name is inform the IRS about it. It’s a standard procedure requiring you to file a proper form. There are several options for paying taxes depending on whether you’re a single member, co-owner, or pay taxes as a corporation. You can read our guide on how to pay taxes with an LLC and find out everything you need to know. Inform Licensing agencies If you operate a business that requires state or federal licenses, you’ll need to inform the relevant agencies about the name change. Some of these agencies may require you to produce a certified document from the state authorizing the name change.   Change the name of an LLC on your business accounts Once the name change is finalized, you’ll need to update all your accounts, contracts, invoices, and leases. You’ll also need to contact your bank and order new credit cards and checks if your company uses them.  The business name must be updated on all your official documents. For instance, you need to change it on all the contracts with your clients and suppliers. Update the name on all other documents The formal part of the LLC name change is completed once you inform your bank and vendors, but then you need to change the name everywhere else. First off, make sure that your website is updated with the latest information. Perhaps you’ll need to change your email address if it contains the old name. You’ll also need to print new business cards, brochures, and any other promotional material you show to your clients.  How can you change the name of your LLC without changing the entity’s legal name? If changing the entity’s legal name seems too complicated or isn’t necessarily the right fit for your business, you can always choose the easier option of filing for a DBA or “doing business as.” This allows you to run your business under any name you want while keeping your legal name unchanged. A DBA is also known as a fictitious name. In some states, business owners are required to have a fictitious name so the state can protect consumers from illegal businesses. Aside from that, a DBA is commonly used for marketing purposes, allowing LLC owners to use another name for promoting their business. How much does it cost to change the LLC name? The costs of changing your business name vary from state to state. Most charge a filing fee to process your application, which typically ranges between $20 and $150. The costs can be higher for those who have LLCs that operate in several states. Bottom line It’s perfectly legal to change the name of your business, and if you follow our short guide, the entire process is straightforward and entirely manageable. But sometimes, changing the name of an LLC is not the best option for business owners. If you aren’t absolutely sure that a name change is necessary, you can file for a DBA instead. This will allow you to operate under a fictitious name while keeping your original LLC name. The DBA filing process generally involves nothing more than a small fee and a simple form.

By Danica Jovic March 23,2021

Whether you’re the owner of a local shop or you’re doing your business online, accounting and bookkeeping are equally important for your business. Both have the same goal: to manage your financial help and make your business stronger. Still, while the boundaries may be blurred, there’s a significant difference between bookkeeping and accounting. Bookkeeping is the process of gathering data associated with your business activities, while accounting analyzes that data, helping you make better decisions for your business. If you’re not a financial expert, there are good chances that you didn’t understand a word from that definition, which means you need to be better informed about bookkeeping and accounting responsibilities. Luckily, our guide will help you figure out the similarities and discrepancies between these two positions, as well as when and why you should hire someone to fill either role. What Is the Difference Between Bookkeeping and Accounting? Bookkeeping is where it all starts: It’s the first step in taking care of your business’s financial health. It involves recording and collecting your business’s daily financial transactions, including bank transactions and receipts for sales or purchases. Bookkeeping refers to the technical process of organizing and preparing your profits and expenses for further analysis. Once that’s done, the financial data you get is subjected to the accounting process. Accounting formulates the big picture of your business by dissecting and interpreting financial information. Accurate accounting is crucial for business owners, as it provides insight into their business’s financial condition. Basically, you shouldn’t pit bookkeeping vs. accounting. Bookkeeping is more about record keeping and classification, while accounting requires more knowledge to “read” the financial information. Both are essential for a successful venture. Many people do some sort of bookkeeping, i.e., they record receipts and categorize their expenses every month to make budgeting decisions. However, business bookkeeping is more stressful, as reconstructing your business’s financial history is no small feat. The accounting process goes a step further, helping business owners run their business better and, more importantly, in accordance with the law. Accountants are responsible for payrolls and taxes, too, so they need to stay up to date with the state laws. The Bookkeeper vs. the Accountant What Does a Bookkeeper Do? A bookkeeper is responsible for taking care of your daily finances. They track your bank transactions, record your sales and purchases, and maintain your general ledger and payroll. The bookkeeper must record your financial transactions regularly and organize them in a way that’s understandable to you. Depending on your needs, bookkeepers can create monthly or weekly financial statements displaying your company’s income and all its expenses. A bookkeeper’s job doesn’t require any formal education, but they need to know how to use bookkeeping software, like QuickBooks or FreshBooks. A bookkeeper has to be a responsible person, since one of the most important bookkeeper duties is to take care of a general ledger - a book that contains records of all your sales and purchases. Although there’s no bookkeeping school, they can get licenses from the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB) to prove that they passed the necessary tests and have the required experience. It’s always good to know that your bookkeeper is certifiably ready to handle your daily finances. Moreover, both agencies require yearly educational courses for license holders to learn new skills. Now when you know what the role of a bookkeeper is, you can think about how much money you’re ready to pay for this service. A bookkeeper’s salary depends on several factors: Your business needs, the state your business operates in, and the level of expertise you’re looking for. Before looking for a professional bookkeeping service, figure out what bookkeeping skills you need and how often you’ll need them. Some business owners learn to use bookkeeping software and only pay for accounting services. However, if your business documentation is too complicated to manage, an experienced bookkeeper is what you need. Once you know the tasks you need one for, you’ll know whether to hire a part-time or a full-time bookkeeper and whether they need to be certified. What Is the Role of an Accountant? An accountant interprets financial data recorded by a bookkeeper and gives business owners detailed insights into their business to help them make financial decisions. Accounting is a practice that has strict requirements and standards each accountant must follow. During financial accounting, an accountant first verifies and analyzes the data provided by a bookkeeper. Then, the accountant creates financial statements and reports that showcase your business performance. These documents include balance sheets, and income and cash flow statements. One of the most important accountant responsibilities is tax preparation and filing tax returns. Unlike bookkeepers, accountants must be familiar with tax laws, know how to calculate deductions, and prepare your returns for the IRS. An accountant also reviews your general ledger to see whether all transactions are correctly recorded. The other part of accounting is advisory: Providing financial advice to business owners based on their financial reports. An accountant with knowledge about your business’s financial health and market opportunities can greatly help your business growth. Although there is a significant difference between bookkeeping and accounting, a bookkeeper and accountant work in tandem. We can think about an accountant as someone who gives directions to a bookkeeper when needed. For example, an accountant keeps track of law changes related to tax returns and helps bookkeepers manage payrolls. Unlike a bookkeeper managing daily transactions, an accountant uses this data to offer an all-encompassing overview of financial health, and helps you plan for the future. Even if you can do bookkeeping on your own, you must hire a professional to do your accounting. After all, the primary difference between an accountant and a bookkeeper is schooling. To be an accountant, you have to get at least a bachelor’s degree from an accredited university, and further your expertise with additional certificates and licenses. The distinction between a regular accountant and a certificated public accountant is also essential. A CPA has at least 150 hours of specialized education and a four-part exam under their belt, and meets the American Institute of CPA’s experience requirements. CPAs win every time in a CPA vs. an accountant comparison, especially if your business has complex tax returns. CPAs specialize in doing taxes, and they can communicate with the IRS on your behalf. However, CPAs are also more expensive to hire. Bookkeeping Versus Accounting – An Overview  If bookkeeping and accounting looked like the same job to you, now you know that these are two different roles with different responsibilities and education. They are both parts of the same process - taking care of a business’s financial health - but a bookkeeper and an accountant have different responsibilities. By now, you probably have a clear vision of what services you need for your business, but just in case, we’ll outline the critical tasks professionals from both branches perform. That way, you’ll always know what the difference between accounting and bookkeeping is: Bookkeepers Perform day-to-day financial tasks Record bank transactions, purchases, sales, receipts Take care of all your income Manage your general ledger Organize and categorize business expenses Manage the payroll Use bookkeeping and accounting software to produce weekly or monthly statements for business owners Work closely with accountants and send them statements quarterly for the purpose of tax payments Accountants Analyze and interpret financial data Advise bookkeepers on how to manage transactions and prepare the payroll Prepare financial statements for business owners (balance sheets, income statements, and cash flow statement) Review the general ledger and other documents Prepare taxes, calculate deductions, and work with the IRS Advise managers and business owners Further Reading Understanding the Types of Accounts in Accounting What Does an Accounts Payable Clerk Do? What is Petty Cash in Accounting? Conclusion Our guide answers the question: is bookkeeping and accounting the same? Financial bookkeeping is more of a technical position, while accounting requires detailed knowledge about finances and taxes. Bookkeepers and accountants work closely to create a clear financial picture for business owners, but they provide completely different services. While it’s possible to do your own bookkeeping with the right software, an accountant’s job can only be done by a professional with a degree. All businesses need both accounting and bookkeeping services to manage their financial records and successfully grow their business; it’s just a matter of who you can afford to hire.

By Danica Jovic April 05,2021