What is an LLC?

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.

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Tax Benefits of Forming an LLC

An 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.

Safety for Your Numbers

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.

Passing the Buck

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.

Choose Your Taxes

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.

Move Over Corporations

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.

Disadvantages of an LLC

Self Employment Taxes

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.

Banking Will Cost You

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.

Still not sure if an LLC is right for you?

Request a consultation online now to discuss the pros and cons with a tax professional at Stanford Entity Management LLC.

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