Do businesses under the same LLC have to be related?

Question

Not sure this is the right forum, but I figure some people here might be in this situation! I know you can run multiple businesses from the same LLC. But when I see this, the examples are always related businesses (ex. a mechanic who also sells antique car parts).

I have a freelance software business that I've been operating for a couple years. Recently, I've also found a few regular gigs as a musician - not nearly enough to warrant its own company, but enough that the expenses are growing and it would be nice to write them off.

Can I log both these businesses under my software LLC?

Answer 1

Do they have to be related? No.

Should they be related? In your case, I would strongly recommend it.

The IRS (along with most tax authorities) generally disallow people from deducting losses on hobbies. Otherwise, for example, people that enjoy photography would be able to deduct thousands of dollars of equipment from their taxes by claiming they were running a business that happened to make minimal profit. Musicians are a prime target for this-- it's pretty easy to find musicians that spend thousands of dollars on instruments, lessons, transportation, etc. to play hundreds of dollars worth of gigs. In that case, you're allowed to deduct expenses up to the amount of money you earned from your hobby but you're not allowed to show a loss.

If your tax authority sees that you have a LLC that does software and music, their immediate suspicion will be that you've set it up this way so that you can illegally deduct expenses from your music hobby in excess of your income from that hobby. You could rebut that by keeping meticulous books that allocate every bit of income and every expense to one of the two lines of business and ensuring that the music business shows a profit. But that's likely to be more time consuming than simply treating the music endeavor as a separate business either as a separate LLC or as a simple sole proprietorship. And you'd only be able to show that evidence once the taxing authority had decided to audit you which is something people are generally eager to avoid.

There are issues around liability as well but those are probably secondary. It is unlikely that either business involves accumulating a lot of business assets so being able to access your music assets if the software company is sued is probably not a big deal. If you carry insurance for the software business, that insurer may not be happy that you're running another business out of the same LLC. But by the same token, it's pretty unlikely that you're going to do something as a musician that does a small number of paying gigs a year that would involve a suit against your LLC rather than you personally.

Answer 2

Yes, you can operate multiple different types of businesses under the same Limited Liability Company (LLC). Businesses operating under the same LLC do not have to be related. However, there are several factors you should consider:

Liability: The main purpose of an LLC is to protect the owner's personal assets from potential business debts or liabilities. If you have two completely different types of businesses under the same LLC, liabilities from one business could potentially affect the other. For example, if someone sued your software business, your income and assets from the musician gig could be at risk.

Taxes and Accounting: Having different types of businesses under the same LLC could make accounting and taxes more complicated, as you'd have to keep track of expenses and revenues separately for each one.

Brand Perception: Operating unrelated businesses under the same LLC could confuse customers and dilute your brand identity. People might not understand how or why a software business and a musician gig are related.

In your situation, if you want to keep your software and musician business under the same LLC, you may want to consider using a DBA (Doing Business As) for one or both businesses. A DBA allows you to operate a business under a different name without creating a separate LLC.

However, before you make a decision, it's best to consult with a business advisor or attorney who is familiar with the specific laws and regulations in your state. They can help you understand the pros and cons and make the best choice for your specific situation.

Answer 3

You CAN, but if you ever get into a situation where you need any kind of insurance for your business activity, it will be a problem because you're in two different lines of business. The insurance companies won't know how to evaluate you as a risk.