A limited liability company does just what it says: it restricts the liability of owners and members. LLCs allow business owners to keep their personal assets separate from the company thus limiting their own liability for the company's legal and fiscal responsibilities.
Form an LLC NowAn LLC offers flexibilities on taxes, making them very attractive to new small business owners. Many growing businesses also choose to incorporate as an LLC for the tax benefits.
Safeguarding the members' personal assets from the company's is one of the biggest pros of forming an LLC. No one can go after the owners to collect debts incurred by the company so there's less personal risk involved than some other types of entities.
The LLC itself does not pay taxes but instead the income and losses are "passed through" to the owners and members. This means it's taxed as personal income and the owners can actually use their business losses to offset other income on their tax returns.
The IRS allows an LLC the freedom to choose how it will be taxed. Although the IRS will default to treating the LLC as a partnership, members can elect to have their LLC taxed as C corp or S corp at any time.
While corporations must distribute profits according to the percentage of ownership of each shareholder, the members of an LLC are not held to these standards. When incorporated as an LLC, members can allocate income and profits to themselves in whatever proportions they see fit.
Passing through taxes to members' personal income taxes can be a disadvantage for an LLC. As personal income, these earnings are sometimes taxed higher than the corporate level and you'll still pay for Medicare and Social Security.
You must have a business checking account for banking purposes since your business and personal finances will be kept separate. These types of accounts are subject to more fees than personal checking accounts, creating additional expenses. You may also be charged for certain types of deposits.
Request a consultation online now to discuss the pros and cons with a tax professional at Stanford Entity Management LLC.