With benefits to each option, there’s no one-size-fits-all approach, so you’ll need to consider how each can help you achieve your business goals. To help, we’ve developed this detailed DBA vs. LLC guide.
What is a DBA?
DBA stands for “doing business as” and is an assumed or fictitious name that your business operates under other than its legal name. For sole proprietors, having a DBA means you can conduct business under a name other than your personal name.
What is an LLC?
An LLC, or limited liability company, is a type of business that is a separate legal entity from its owner. This type of business structure protects your personal assets from any liabilities incurred by your business.
DBA advantages and disadvantages
Branding. A DBA creates a distinct marketing identity that can be useful for both sole proprietors and LLC owners and makes it easier to reach target markets. It also means you can legally use your DBA name on business cards, letterhead, and promotional materials. In some cases, you might use several DBAs to develop different brand names and websites for different categories of products you’re selling.
Business bank account. As a sole proprietor, you can use a DBA to open a business bank account and collect payments using a name other than your personal name. It will also help you keep your personal and business finances separate, saving you time and hassle come tax season.
Affordable. Even sole proprietors on a tight budget can likely afford to register a DBA. In many states, registration fees are $10 to $25.
Simple setup. Registering a DBA is quick and easy. The specific process varies by state but is generally uncomplicated and takes no longer than a few weeks. In some cases, it can be as fast as one or two business days.
Privacy. Whether you run your own business or are part of a partnership, a DBA can help keep your personal information safe from the public. However, keep in mind that the name of a DBA owner is a public record, so if people really want to know who owns your business, they’ll eventually find out.
Personal liability. A DBA does not legally protect your personal assets, so if something goes wrong and someone files a lawsuit against your DBA, they’re filing it against you personally. That means you’re responsible for paying any resulting fees with money from your personal assets and accounts. If your business goes under, any debt it has accumulated remains your own.
No legal claim to business name. Your DBA functions as a trade name only, and in most states, you have no legal claim to the name you selected for your DBA. Because you have no exclusive rights, you can’t prevent anyone else from using the name. To gain legal rights to your DBA name, you must trademark it. Not only is this process expensive, but you may end up having to pay even more if you need legal advice or representation during the trademark process.
No tax advantages. Sole proprietors who are only doing business using a DBA don’t receive any special tax benefits as LLCs and corporations do. As such, any money your business makes passes through to your personal tax return and is taxed accordingly.
LLC advantages and disadvantages
Limited personal liability. Forming an LLC creates a separate legal entity from its owners. As a result, the LLC is legally responsible for the debts and liabilities it incurs. You may own the company, but your personal assets are protected, even if your business is sued, takes on significant debt, or files for bankruptcy.
Legal claim to business name. Once you start an LLC, no one else in your state can use your business name. You’ll still need to register with the United States Trademark and Patent Office if you wish to protect your company’s name on a national level.
Increased credibility. The letters LLC convey legitimacy and credibility in your business name. It also communicates that you are serious about your business. Please note: DBAs are prohibited from including words and phrases like “LLC” and “corporation” in their name.
Tax flexibility. As an LLC, you have more control over how you are taxed. Although most LLC owners favor pass-through taxation, LLC owners may choose to be taxed as corporations if doing so saves them more money.
Expensive. Forming and maintaining an LLC is usually more expensive than registering a DBA. Many states also charge recurring costs for annual reports and/or franchise tax payments. DBAs only require two payments: one for registration and a renewal fee that is required every five years or so (check with your state for the exact renewal time frame).
Paperwork. An LLC typically necessitates more paperwork than a DBA, as most states require annual LLC filings.
DBA vs. LLC: filing taxes
LLCs and sole proprietorships operating under a DBA are both “pass-through” businesses, which means neither is required to file a separate business tax return. Instead, the business’s revenues and losses pass through to the owner’s personal income tax return.
In either case, sole proprietors and LLC members pay federal and state income taxes and self-employment taxes on their business income when filing their personal tax returns.
Taxes as a sole proprietor with a DBA
Sole proprietors using a DBA do not need to file a separate business tax return. Instead, file your individual federal taxes annually and account for your business income and expenses by completing a Schedule C form in addition to your normal personal incomes taxes (Form 1040). After that, you’ll pay your taxes according to your assigned tax rate.
You’ll also pay a self-employment tax on your business profits to fund your Medicare and Social Security payments, which are normally covered by payroll taxes. Depending on the state, you may also be required to file state returns, which you can do yearly or quarterly.
Filing taxes as a single-member LLC
Like a DBA, the IRS treats single-member LLCs as sole proprietors by default, and business profits or losses pass through to your personal income taxes. As an LLC, you can also choose to file your business taxes as an S corporation using Form 8832.
While it’s not the most common move for most single-member LLCs, it’s been known to save some business owners thousands of dollars, making it worth a bit of research.
DBA vs. LLC: paperwork
Forming an LLC and registering a DBA both require submitting paperwork to your state and paying a fee. Despite these similarities, fees tend to be higher for LLCs. Limited liability companies must also complete more paperwork and adhere to stricter guidelines than DBAs.
How to file for a DBA
Before using your DBA name to conduct business, you must register it with a local, county, or state government. To learn about the criteria for registering in your area, begin by visiting the websites for your Secretary of State or County Clerk’s offices. Here, you’ll often find everything you need to know, including an online name search tool (here’s Los Angeles County’s fictitious business name search tool) to help you find out whether or not your preferred name is available.
Once you’ve determined your DBA name is available, it’s time to start the paperwork to file your DBA. This should only consist of a few pages, and you can usually access them online. At this point, you’ll pay the filing fee, which can range from $10 to $100. Then you’ll wait anywhere from a few days to as long as four weeks to learn if the application is approved. After your application is accepted, you may be required to post a notice in a local newspaper.
How to file for an LLC
The process of forming an LLC is slightly more complex than registering a DBA.
Plan on creating your LLC in the state where you live and run your business. You must choose a name for your LLC that is available and legal in your state. Although each state has its own set of standards, most include the following:
- Your company name must have the words “LLC” or “Limited Liability Company.”
- You must select a business name that is not already registered as a business entity in your state.
- Words or acronyms like FBI, NSA, Homeland Security, or any other text someone may misinterpret as standing for a government organization are prohibited.
Choose a registered agent, which is a person or company that sends and receives legal documents on your behalf. Some states allow you to designate yourself.
Once you appoint a registered agent, you need to complete all of the paperwork required to file for your LLC in your state. These include your Articles of Organization and Certificate of Formation, usually found on your state government’s website. You may also need certain forms required by your state, such as a business license or Employer Identification Number (EIN).
Finally, before you can begin operations, you’ll need to pay your state’s filing fee. Overall, you can expect to pay $100 to $800, depending on your state.
DBA vs. LLC: which is best for me?
Now that you understand the distinctions between a DBA and an LLC, let’s look at some specific situations where one might be more useful than the other.
When to choose a DBA
A DBA is a strong solution if you want to rebrand, localize, or expand your existing business.
For example, if you own a pet-sitting business and want to start selling pet clothing and accessories, a DBA would allow you to sell the accessories under a more applicable name.
A DBA is also helpful when you’d prefer to keep your name private. For example, if you’re starting an online business and blog that reviews local restaurants, you may want to use a DBA.
If you take high school senior photos in cities near where you live, you can use DBAs to hyper-localize your business and improve your marketing. For example, you might create multiple DBAs like “Epic Senior Portraits - Raleigh” and “Epic Senior Portraits - Durham.”
When an LLC is your best choice
An LLC is always the best choice if your business is continually growing and earning money. Forming a legal business entity will protect your money and can make it easier to get a business bank account or loan.
Certain risky business industries may be better suited for an LLC as well. For example, if you’re starting your own business as a licensed caretaker, you’ll want to start an LLC to protect your personal assets. If a client were to fall and their family blamed you for their injuries, an LLC would protect your assets in case the issue ended up in court.
How Bench can help
Regardless of your business structure, accurate and complete bookkeeping is the backbone of a stress-free tax season. With Bench, your bookkeeping is completed and reviewed every month, giving you access to up-to-date and accurate information on your business’s financial health.
Come tax season, a CPA or tax professional uses your Bench-generated financial reports to get you filed. Don’t have a tax solution? Bench can file for you as part of your subscription package.
While an LLC is typically your safest bet when it comes to your business and personal asset protection, DBAs also have their place. They are easier to establish, are smart branding tools, and are less likely to break the bank for budget-conscious entrepreneurs.