McStartup

Brady writes:

I have a question about llc vs s-corps startup advertising. It is my understanding that when I start an llc I have to advertise a certain amount in order to make my llc legitimate to the government. however I have not been able to get any clear answers regarding what exactly qualifies. For example can I advertise on google? and who checks up on this do I just keep my own records etc?

There is no such requirement to my knowledge, and I'm sure there are thousands of LLCs which conduct no advertising.  It sounds like there might be some confusion as far as having a legitimate business for tax purposes, versus using an LLC (or any other business structure) as a tax shelter. 

Your CPA can best address any concerns you have about staying clear of tax trouble, but from my limited knowledge, I can tell you that if you are going to write off business expenses (via an LLC, S-Corp, Sole Proprietorship, or otherwise), the IRS says you have to be running a legitimate business and not just a hobby.  So, if you like to grow corals in your saltwater aquarium and you want to setup a business to do that, you certainly can, and can write off any legit expenses you have in operating that business.  If, however, your are really just growing corals for your own fun and enjoyment, you can't deduct all the expenses in doing so from your taxes, because you aren't actually running a business.

Your guess is as good as mine when it comes to figuring out how the IRS will cast judgement on what is a legitimate business and what isn't, but I suspect that simple honesty is the best policy.  If you are actually trying to make some money selling a product or service, that's a business, regardless of whether or not you actually make any money at it.  If you have a business running for 10 years and have never shown any income, I suspect that's a red flag to the IRS.  At the same time, there are plenty of businesses that will lose money up front to make money later.

Keep good financial records, and keep your personal finances separate from the business.  The "advertising requirement" you refer to is, I suspect, just someone trying to tell you that you need to be trying to make money.  This would be the same regardless of business structure.  It sounds like you are planning to make money, and that you don't need to advertise to do that.  Fantastic.  An LLC is probably the right structure for you, and as I've said before, you can quickly and easily setup an LLC on your own, with help from LegalZoom, or you can use an attorney.

There are many reasons to choose one business structure over another, but an advertising requirement is not one of them.  Be sure to check out my past article about choosing a business structure.

Good luck with the business!

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