A lot of officials ask about forming LLCs, but it’s probably not a good idea unless you’re more than just an on-field official.
Assignors, booking commissioners, tournament directors, event organizers, and others may gain a benefit from forming an LLC or S-corporation. That’s because instead of only your personal services and payments, you’re also potentially responsible for the actions of others working with or for you.
Is it practical to form an LLC?
Before getting into tax issues, the question is if it’s even practical to form an LLC. Most sports officials sign up as individuals under an independent contractor agreement. The organization may not have a process or want to go through the hassle of signing a contract with an LLC.
Does an LLC substantiate officiating-related expenses?
In some circumstances, forming an LLC can be a sign to the IRS that you’re trying to establish a business activity rather than trying to take deductions for a hobby. In the officiating context, this will probably have little to no weight.
You can easily prove you have business income through your contracts, 1099s, and assignment logs. For obvious expenses, such as fees to register as an official, your receipts, membership brochures, etc., should be more than enough.
For those gray area expenses, such as a pair of shoes that can be worn in other activities, the main question is whether this is a personal expense? The IRS probably won’t take “it belongs to my LLC” as proof that it’s a business rather than a personal expense. They’re looking for things like why it can only be used for business or how you divide up the personal vs. business use percentages.
Does an LLC substantiate home office expenses?
Again, whether you have a formally registered business is something the IRS considers (but in no way requires) for business expenses including the home office deduction. But the two big questions are what business activities are you doing in the office, and do you use the office for any other purposes?
Checking your assignments, taking online certification classes, and filing match reports are all administrative activities that could potentially allow a home office deduction if you have a separate area where you do those activities.
But then there’s the smell test of do you really reserve a portion of your home for a couple of hours of work per week related to a part-time side gig? That means no paying personal bills at the same desk, nobody playing games or surfing the web on the computer, etc. Since an LLC is evidence that you have a business but not what you’re doing with the rest of your time, it won’t help much here.
If you have another business, you can share a home office between two or more business activities. However, you only get one home office deduction, so it may be easier to just include the expense on the Schedule C for your main business.
LLCs and State Taxes
One another thing to note is that an LLC could cost you more in state taxes.
Most states charge you anywhere from $100 to $1,000 per year just to have an LLC. If you work in another state, you may need to pay that state’s fee as well. This is because LLCs are under state law not the IRS or federal law. If you don’t register with each state, your LLC may not exist in that state.
Along the same lines, some states don’t require you to pay income taxes if you, as a visiting non-resident individual, are only there for a few days or don’t exceed a certain amount of income in that state. However, as an LLC registered in that state, they may want income taxes on every dollar of income you earn in their state.
Bottom Line on LLCs
An LLC probably won’t help an individual official reduce their taxes, but it will definitely come with extra costs.
