ydqa ep19

John Dickow: [00:00:00] Hello, and welcome back to another episode of Your Drone Questions Answered. I'm John Dicko here to find the person to answer your drone questions. Today we have a question. When setting up a drone business, do you need to have a business checking account or can you just have clients write you a check?

Personally, this is actually a question submitted from our Drone Launch Academy Private Community Drone Launch Connect, submitted by Rob. And so today I have with me the founder of Drone Launch Academy, David Young. David, thank you for being here again with me today.

David Young: Yeah, thanks John.

John Dickow: So this is kind of an interesting question.

It's not just, you know, there's also the questions of how this works when claiming income at the end of the year. I mean, especially if this is a part-time. Gig. And so obviously you're the right person to talk to about this situation because you founded your own business here, d l a. Let's just kind of start, get right into it.

what did you do, in terms of,

David Young: setting up. Sure. So there's like the best practices and then there's kinda like what you can get away with. So I've always done it to where I've set up a completely separate bank account, and I have [00:01:00] separated all business and personal stuff and it's, we can talk about why that's good and you know, what, what's required, right?

It's always best, in my opinion, to set up a separate entity, so like a limited liability company. sometimes an S-corporation or you can do something like it's an llc. Taxed as an S-corporation is like a popular thing if you're making over a certain threshold of income.

but as far as taxes go, so when the IRS is looking for tax purposes, they don't even really recognize, an L L C. A limited liability company. They only see certain things. So, and again, I'll, I'll give my some, before I went into drones and, started Drone Launch Academy, I went to school for accounting.

I used to be a cpa and uh, I do my master's in finance and all stuff. So this is what I used to do all the time. Uh, but now I'm over in the, in the drone world more. Um, but I do remember all this stuff. So, IRS either sees you as a sole proprietorship, which is just me. Let's say I wanted to have a drone business.

It'd be me flying my drone. I'm getting paid. and that's it. So they see me as a sole proprietorship. They're taxing me. the money that I get from my business, kind of, they'll say, flows through, is what they [00:02:00] say. So it ends up directly on my personal income tax return. A lot of times it would be on something called a Schedule C.

It's getting a little in the weeds, but it's basically just a list of, Hey, how much money you made from this kind of side business of yours? Or even if it was a full-time business, what were all your expenses? What was your net income? And that net income amount from yours? Schedule C goes on your personal income tax return, and it's just you as a business.

so that doesn't matter if you're, if you have an LLC or if you don't have an llc. That's what they see now. What you don't want, if you got audited, right, and they start looking, they say, okay, show us all the money you made and all the expenses that you claimed. So let's say I owned a drone business.

Say I made, you know, a hundred grand, but then I bought a bunch of drones. I paid for marketing, I hired some subcontractors, whatever. Uh, and let's say I cleared 50 grand. I'm just making up numbers to make it nice and easy. They're gonna say, okay, show us. All the money that came in for that a hundred and then show us total it up to the 50 grand that you spent and all the documentation you have to show that these are legitimate business expenses.

Now, if that's [00:03:00] all inside your personal account, right, it's gonna be mixed in with all of your other personal. Expenses every time you went and bought a t-shirt, anytime you bought food or got gas or whatever. And then you're gonna have to be sitting there and going, oh, well this one was business but this one was personal and you're gonna sort it out.

It's gonna be a giant mess. And they don't like commingling funds. Okay. Okay. So if you have a separate entity, L L C, you can set up a bank account for that name. So for me, I have a journal launch Academy, L L c. Entity and they have bank accounts that are set up in that name. Same thing. I have a, a drone business, uh, that we use too for when we do drone work ourselves.

And that's got its own checking account. It's got its own everything, right. And so when I get a check for drone work, I put it in that account. When I get a check for people buying courses or whatever, that goes into the Drone Launch Academy account. and it keeps it separate so that way, if you know, we ever get audited, it's all in one place.

All the documentation is clean right there. A second thing is, let's say you do have an llc and the reason you would set up an LLC is for [00:04:00] liability protection. It's why they call it limited liability company. So it makes it like its own. We say own entity, but think of it as like its own person. So if you were working on behalf of the L L C or a subcontractor employee was, and they caused some damage or did something and someone tried to sue you, that whoever was kind of coming after you or trying to bring a l some lawsuit against you or some claim against you, they can't go then after all of your personal assets, they can't go get your car and get your um, you know, personal possessions, anything like that.

They can only take. Or can only make a claim against what is inside of the business or owned by the L l C. but the problem starts when you, let's say, have an account and you're using that account for personal stuff and business stuff, kind of, they call that co-mingling funds. And what happens there is someone could, let's quote Pierce the corporate veil.

And again, I'm not an attorney, so it's kind of diving a little outside of the accounting world and into the attorney world. But sure, if someone pierces the corporate veil, it means, oh hey. The courts will say, there's not really a distinction between [00:05:00] you and your business here, just kind of you're treating it all the same.

Therefore we're gonna act like the business protection doesn't exist and they can come after your personal stuff. so that's another reason why it's smart to have a separate entity and then keep your. Accounts separate. So keep your personal expenses and your personal paycheck and your personal accounts, and then keep all business income and keep all business expenses in your business account and keeps it nice and clean.

And whenever you're ready to pay yourself, you literally write a check or do a electronic transfer or whatever from your business account to your personal account, and you can label it. Owner withdraw, owner distribution, whatever it means, hey, I own the business and I'm taking money out to, claim profits or pay myself.

Right? and that is viewed as a, okay, that's just an owner transaction. That's not you co-mingling funds. That's how you're supposed to do it. There's nothing illegal about just operating as yourself, David Young. I go do some work. I fly a drone job, somebody writes me a check for 300 [00:06:00] bucks, hands me a check and I deposit it in my account.

Um, and then at the end of the year, I want to go and I do that and I write off expenses. you can do that. It's not illegal. there's nothing technically wrong with it, but you don't get any liability protection if someone tries to. Sue you for something. And if you ever get audited by the irs, it's just gonna be, very messy.

You're gonna give yourself a headache. It's gonna raise a lot more questions cuz they're gonna get your bank account statement and now they're gonna see all of your stuff and you're gonna have to do a lot more explaining as to what was what, and you're just gonna create more problems for yourself. And it's not that hard to create that separation.

one more point to bring up. If you are in a state where it's very cost prohibitive to start an L L C, I think Massachusetts is pretty expensive. Maybe California. There might be one other where I think it's like somewhere in the ballpark of 500 bucks to start an L L C. And let's say you're doing it like this person was just on the side.

You're not even expecting to really bring in that much money from it. You're just kind of dabbling. one thing you could do it's called a dba, doing business as, or a fictitious name, [00:07:00] which means you're not setting up an L L C or anything, but you are creating a separate name to do business as So I could say, Dave's drone services and I could file that, with usually that's like at the county level, and if that's filed and if that's legit, then I could open up a bank account in that name.

Now again, it's not like an official entity that's separate from me, but I'm allowed to do business under that name and I can have a separate business or a separate account. In that name. and I can deposit my checks there and people could make that out to Dave's drone business. You know, it's not an L L C or anything like that, but it at least allows you to have a separate account with separate expenses, without having to set up an official kind of legal, company.

So if for some reason you don't wanna go through all those steps, To, you know, cuz there are some registration fees, right? I think in Florida it's around a hundred bucks a year. but in some states it, it can be a lot more expensive if you're really not doing that much business with it. So could make more sense to just get your, like a fictitious name so to call and then make sure you have good [00:08:00] insurance, that you carry to cover someone, you know, tries to sue you for, I don't know, flying your drone over their house or whatever.

I haven't really heard of that happening, , those are your options. That's kind of like the full gamut. best practice is, set up an llc, get a separate bank account, keep everything separate, make your life a lot easier. But that's, that's the full spectrum of options that you have there for that.

John Dickow: Well, and one related question I had was, and you mentioned the cost, but besides the cost is setting up an L L C

David Young: complicated. No, I mean, I don't think so. I've done it several times, throughout my life, but I even remember back the first time I did it. it's really nothing crazy. don't let some of these places charge you hundreds of dollars to set this up for you.

There will be some sites or some people that will try to take advantage of you and say, pay me $500, whatever, a thousand dollars to set up your L L C. That is not necessary. The actual registration of the L L C is extremely simple. Usually you can do it online. Go to your Secretary of State website, so type in Florida, secretary of State.

Sometimes it's called something similar, like State Corporation Commission, somewhere in there. and then be ready because as soon as you Google that, there's gonna be a ton of [00:09:00] ads. They're gonna try to get you off to a different website that kind of look like a government website, but aren't actually the real government website.

so it's not hard to create one. The only thing that would be kind of tricky is that once you do have one set up, you're gonna want an operating agreement. If you have a L L C, it's basically just spells out the rules of the company, you know, who's involved, who's an owner, what rights do they have, how do we wind the company down, what do we do if there's disputes, things like that.

If you are just by yourself, it's gonna be called a single member, L l c. Typically that's pretty simple. you know, as far as an operating agreement goes, there are some websites around that can help you do that. you might be able to find a template. Obviously the best answer is find a lawyer to do it for you if you have, if you really wanna be buttoned up, in our.

Business program that we have, our drone one K business program, we actually had a lawyer draft one up and it's available to people in that course. but then if you have more than one person involved in the L L C, it's called a multi-member l l c. And that's when I say actually would be worth the money and wise to get a real attorney to, look at that and draft something [00:10:00] up for you because at that point, you have another person involved and as much as you hate to think about it, disagreements will come up.

Even if you guys are best buddies, when you start the business three years later, you have a disagreement. It's always best to have that stuff thought through in writing what's gonna happen, how it works. so anytime I've been involved in a business where there's multiple people involved, even though I've only done that with good friends, we've always had an attorney.

Look it over. Walk us through the process. Make sure that that's good. So if you're by yourself, you probably get away with finding something out there. but if it's more than one person, do yourself the favor and, and get an attorney to take a look at it. Make sure that you have done the the right things to prevent future headaches.

Sure. Just like any,

John Dickow: any marriage, right. You have legal protect behind that as much

David Young: as you'd hate to think about it. Yeah, exactly.

John Dickow: in a nutshell though, I mean, going back to the question, there's really nothing illegal about commingling your funds, combining your personal and business checking accounts, but there are, there are risks

David Young: to it.

Yeah, not illegal, just unwise. Yeah. Okay. Especially given the fact that you can [00:11:00] do the fictitious name thing for virtually free. I think most counties only require you to put a, a notice in the newspaper or something, which costs it's pretty insignificant amount of money. Usually it's like 20 bucks or something.

and once you do that, you're good. You can open a checking account for free. Right. It's just. Some steps you have to take, but it's not, very expensive. And you could do that and save yourself a lot of headache. And not to mention, it just looks much more legitimate if you have some business name you're operating under versus, you know, they say, all right, cool.

You know, what, who do you make the checkout to? And you're like, oh, I don't know, just me. You know? And they're like, oh, is this, is this legit? Or you get, you know, what is this?

John Dickow: I mean, this is fantastic. This is probably a pretty important question to a lot of people in the drone launch community because a lot of community members are people who are looking to start up their own businesses, and, and this is a pretty important first step, I would say.

So, thank you very much, David

David Young: for being here and answering. Yeah, sure. No, happy to do it. And Ramir, this is, this advice applies for any business you wanna go start. So if you're gonna do surveying stuff or drone stuff, or some other type of consulting, I did this same thing when I, started [00:12:00] up like an accounting consulting business several years ago.

I did this when we set up an LLC to buy a real estate property with two friends of mine, right? the process is the same, no matter what. So the advice is pretty universal as far as business goes.

John Dickow: Fantastic. Well, again, uh, David Young Founder Drone Launch Academy, thank you for being here to answer this question, a question that was actually submitted through, the Drone Launch Academy Private Community Drone Launch Connect.

And so if you are a part of that community, feel free to submit a question. We'd be happy to answer it here on this podcast. Or of course you can still submit a question, at y dqa.io and we will answer it, that way as well.

David Young: Thanks John. It's been great. Appreciate you having me on.

John Dickow: Thank you. And thank you for watching. Thank you for listening. And in the meantime, until next time, we'll see you in the sky.