Nov. 4, 2011

Aspiring entrepreneurs, be warned. It’s scary out there. That’s the word from Russell Davis, owner of San Diego Business Law, who participated in a panel discussion Thursday presented by the San Diego Law Library. “DIY Law: Top Mistakes Businesses Make,” kicked off the new quarterly educational series for business owners. DIY stands for “do it yourself” legal services, where newbies are foregoing the expense of hiring legal advisers and going it alone. Ironically, this can prove to be very expensive, Davis said. “A lot of folks out there setting themselves up in business, start with an entity choice that may not be correct,” Davis told the Daily Journal earlier that day. For instance, an LLC may sound “sexy and cool,” but in California, they also come equipped with a gross receipts tax — payable whether the business makes a profit or not. “You could lose money, but they still tax you based on how many dollars came in the door,” Davis said. And beware of violating the strict rules of the S corporation, the business form used by most mom and pop operations,. “The IRS will say you are no longer an S corporation for tax purposes, but a C corporation,” Davis said. “That could change radically how they draw income out of the business and change radically how their assets will be depreciated. It’s not a good surprise.” — Pat Broderick