Should a Travel Agent be a Sole Proprietor or a Limited Liabiulity Company (LLC). Now I don't know everyones specific situation, but this article is written assuming you are an independent travel agent, and maybe you do or do not have a few sub agents. But, you are the sole owner of your business with no partners (thats another topic). Those are the people I help, and thats who this article is intended for! Each of the options has its own set of pros and cons, and it's important to consider them carefully before making a decision. Let's break down each one so you can decide what is best for you.
Sole Proprietor
For a new travel agent, a sole proprietorship is the simplest and most common type of business structure to set up. In fact, over 70% of businesses in the US are Sole Proprietors. I mean even E-bay started as a sole proprietorship! A sole proprietorship is a business owned and operated by one person and may or may not have employees.
Pros:
Easy and inexpensive to set up: You don't need to file any paperwork or pay any fees to start a sole proprietorship. Local licenses may be needed.
Complete control: As the sole owner of the business, you have complete control over all aspects of its operation.
Tax benefits: You can deduct your business expenses on your personal tax return which can lower your taxable income.
Cons:
Personal liability: You're personally responsible for all of the business's debts and liabilities. If the business is sued or goes bankrupt, your personal assets could be at risk. There is no sepration between you and the business.
For many agents just starting out, booking trips for family and friends or not generating much income to justify additional expenses, being a sole proprietor path can be a good start especially when coupled with a good insurance policy to protect you in the event of a lawsuit.
Limited Liability Company (LLC)
An LLC, or Limited Liability Company, is a hybrid business structure that combines the benefits of a sole proprietorship with the liability protection of a corporation. An LLC is a separate legal entity from its owner(s), which means that the owner(s) are not personally responsible for the company's debts and liabilities.
Pros:
Liability protection: An LLC provides liability protection for its owner(s) which can protect their personal assets if the business is sued or goes bankrupt.
Tax flexibility: An LLC is a business entity type, not a tax election. An LLC can choose to be taxed as a sole proprietorship, partnership or S-Corporation which provides flexibility in terms of tax planning and growth.
Easy to set up: While there are some fees associated with setting up an LLC, the process is relatively easy and straightforward.
Cons:
Higher costs: While setting up an LLC is relatively inexpensive in most states, there are some ongoing costs associated with maintaining it, such as annual filing fees.
In order to avoid comprimising the integrety of your LLC liability protection, you need to ensure all your business and personal dealings are kept seperate.
We have set up my wife's travel agency as an LLC. The liability protection and tax flexibility make the LLC a great choice for a starting and growing as an independent travel agent. As her business continues to grow, we may look at changing the taxation of her business to an S-corporation election, but will retain the LLC entity designation.
Ultimately the decision is up to you based on your current situation and future goals. If you choose a sole proprietorship or especially if you choose an LLC, it is very important that you keep your personal and business income and expenses separate. This is the single most important things you can do to evaluate the health or your business, ensure you receive all possible tax deductions and most importantly that you maintain the integrity of your LLC. I created this FREE Expense and Income Tracking Google Sheet for Travel Agents to help you with just that!
Author – Andy Roed
I am a tax professional and financial coach focusing primarily on helping travel agents. I am someone who is married to a travel agent, loves to travel and loves everything finance. The intersection of these passions has led me to a career that I am truly passionate about. My goal is to help travel agent get control of both their business and personal finances as well as helping to alleviate the stress with tax time.
If you found this article interesting and are interested in more like it or are looking for someone to help you with all things taxes and finance please visit me at www.taxesfortravelagents.com or join our Facebook Community.
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