Taxes Made Simple

A reader asks: In the middle of this year I reorganized my sole proprietorship into an LLC. My question: Is there some formality I must show the IRS? Also, should I use the LLC name or the original business name for most purposes?

My answer: Given that an LLC is a disregarded entity for Federal tax purposes, there isn't much of a change really. If you formed it in the middle of 2009, the only difference is that you'll have 2 Schedule C's for the year--one for the period during which the business was operated under your name (and SSN), and one for the period during which the business was operated as an LLC (with a new Federal Employer Identification Number).

As to what business name to use in general: I'm not a lawyer, so it would be a good idea to get this verified, but I believe there could be potentially be unlimited liability issues if you don't operate under the LLC's name. That is, if you continue doing business as yourself (or under the name of a "doing business as"), the LLC might not protect you from any lawsuits.

Want to learn more about the entity-selection decision? Take a look at my related book: Surprisingly Simple: LLC vs. S-Corp vs. C-Corp Explained in 100 Pages or Less.