For most oilfield workers, hard-earned paychecks are deposited into personal bank accounts after each two-week hitch. Consider the legal and financially savvy alternative of using a bank account that DOESN’T have your personal name on it. Instead, opt for one in the name of your personal LLC.
Rather than collecting and cashing those paychecks as an individual, I’d recommend looking into establishing yourself as an LLC, or Limited Liability Corporation. This hybrid business form adopts characteristics from both corporations and sole proprietorships. The LLC avoids many of the requirements of a corporation while offering liability protection for the owner. They are authorized via the Secretary of State’s office and you’ll receive an EIN (Employer Identification Number, also referred to as a Federal Tax ID Number) from the IRS.
The LCC’s biggest bonus is that owners have limited personal liability for the acts and debts of the business without the paperwork and record-keeping involved with a corporation. Personal assets, like home, car, and personal bank accounts, are generally not “on the table” to pay business debts, including lawsuits against the business. In the cyclical and often hazardous oil and gas industry, this is a benefit well worth considering.
When there is only one owner (or member) of the LLC, the individual reports the LLC’s income or loss on your individual tax return. You pay your normal individual tax rates and avoid the double taxation that comes with forming a more complicated and expensive corporation structure.
You will have to pay a small initial registration fee and the annual franchise tax, but this can be small price to pay for the privilege of limited liability. According to LLCUniversity.com, $135 is average LLC filing fee across the US and the form can generally be filed online for almost instant approval. Sole proprietorships are generally less costly than LLCs, but they don’t offer the same liability protections as the LLC. If you’re in Texas, read more about this tax on the state comptroller’s website (https://comptroller.texas.gov/taxes/publications/98-806.php).
With an LLC, you must keep records and funds separate from your own – which brings us back around to that bank account and where to deposit your paychecks. To create a separate financial entity for your business, you must have a business bank account separate from your personal one. This also allows you the opportunity to have other business expenses and the tax deductions that come into play.
Remember to consult your accountant and your attorney to get more details and make a decision that’s good for you and your personal situation.
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