What Business Category Should I Choose?

[Windtalker]

I recently read in informative article in the July/August issue of the Escapees magazine on “Legal Advice for RVers Starting a Business” but it did not address the specific situation that my wife and I will be in when we begin full time RVing in the spring of 2019. I am looking for someone who can shed some light on our situation and answer some vital questions.

I currently have an S-Corporation licensed in the state of Maryland, but I will be shutting down this business as of December 31, 2018 in anticipation of our move to Texas to set up our domicile with an address through Escapees. Through this current company, I am running all income and expenses related to my live Native American flute performances, sale of my Native American flute CDs, three (3) self-published books, and my wife’s photos. Each month, the company also receives royalties on the sale of the books and CDs, through distributors and online sales, as well as royalties for the download and internet streaming of my music; all of which are deposited directly into the business bank account. Once the current company is shut down, I will be having all these income streams deposited into an account at a new bank that has branches nationwide.  

I plan on continuing to perform on a periodic basis as we travel around the country in our RV and we will continue to sell our books, CDs and photos online and at performances. We will also continue to receive royalties on CD and book sales. Since we will not be permanently living in Texas, and will not have an “office” there, (we will only have an internet presence with our website, “RMGH Adventures”), we are unsure as to what category our business will fall under, based on the article in the Escapees magazine. What we will be doing does not fit into any of the business categories mentioned in the article.

I have read where our type of business, due to its projected minimal income and expenses, could fall under the category of a “hobby business.” However, I have been unable to find information on this business category that spells out the specific legal criteria in Texas for such a business.

Can anyone shed any light on our predicament?

[Kirk W]

It sounds to me as though you need qualified legal advice, rather than opinions of amateurs like us. Try sending an email to Susie Adams, attorney to see what she has to suggest. 

[Windtalker]

Thanks, Kirk. I emailed Loring & Associates on October 26th with this same question and am still waiting to hear back from them.

[Blues]

6 hours ago, Windtalker said:

we are unsure as to what category our business will fall under, based on the article in the Escapees magazine.

I didn't read the article (no access to it), and am curious where you're anticipating having to declare this category.

[Windtalker]

We will be making our domicile in Texas, with an address from Escapees.

[Sehc]

Can you keep your arraignment in Maryland? I know people with home address in some state, but have banking and Accountants in another state.

Other wise couldn't you keep the same categories you use in Maryland? 

proper legal advise is recommended. mine is worth what you paid.

[LoringLaw]

Thank you for reading my article in the July/August Escapees magazine publication. I am sorry we didn't see your email. As to what kind of company you need to create, Texas Secretary of State has a great website that helps walk you through the questions (https://www.sos.state.tx.us/corp/related.shtml). You can also call and schedule a free consultation with me at Loring & Assoc. 800-260-1615 ext 2. But to give you a general answer: In short, each enterprise is unique so trying to answer your question in a vacuum is difficult. Although you do not need to change the state of incorporation from Maryland to Texas (e.g. many companies used to choose Delaware just because Delaware laws were so company-friendly) it helps the claim that you are domiciled in Texas if your business is also incorporated/created in Texas. Texas is also company-friendly so it is worth your while to look into closing the SCorp in Maryland and creating a new company in Texas, but it isn't required. So first explore the pros and cons of that (which we can do together if you can schedule to talk with me). As to which company structure is best for you, that I would rather answer after a consultation. Best to you and we look forward to your Texas move!

[Twotoes]

I am an attorney but do not specialize in tax law. As a business you can be a sole proprietor, partnership ( if you have a partner), LLC or corporation. As a corporation you can be a sub chapter S. An LLC and a Corporation are separate legal entities and can have their own domicile different from you. Your corporation must have a separate bank account from your personal bank account. In your situation, as a small business, you may not even want to be a corporation and reorganize your business as a sole proprietor in TX or whatever State you make your domicile. Again I am not a tax attorney but as far as income tax, I believe you will owe income tax to each and every state where the income is earned, but so would your corporation. A sub chapter S Corp is still a corporation but the income flows to you and would be taxable to you. I highly recommend that you consult with a tax lawyer for expert advice. It will be money well spent. 

[Windtalker]

Thank you all for your input and suggestions. We have done some additional research, and since we will only be offering services and products on an intermittent basis, from which we will recognize only a small income, and will only deduct the allowable expenses up to the profit level, we have discovered that what we intend to do falls into the IRS category of a "Hobby."

[Blues]

So is your income tax return the only place you were anticipating having to declare the category your business falls under?

I can't read the article you referred to, and am curious where else I might have to declare a business category--income tax was the only one I could think of.

[Windtalker]

Yes, federal income tax only, since we will be domiciled in Texas where there is no personal income tax. We discovered we can claim that "category" on the IRS form and it all becomes personal income, less any allowable expenses related to the "hobby."