Running a business can be difficult due, especially when you consider complex tax rules and the possibility of opening yourself up to liability lawsuits. Anyone who has ever run a business would agree. If you’re thinking of starting a new business – or if you’ve been making money and need to create a business for tax purposes – you can protect yourself best by enjoying the benefits of an LLC or Limited Liability Company (LLC).
Tax structure and individual protection are some of the most important aspects of any business, and many people forget all about them when establishing a company. So if you still need to decide what kind of business structure to operate under, continue reading for a few of the top benefits of an LLC.
Benefits of an LLC Include Protection from Debt or Lawsuits
An LLC offers protection to entrepreneurs from the dangers of unlimited personal liability exposure. By definition, an LLC helps protect the individuals in the event of a lawsuit, debt incursion, or other difficulty. In other words: if you set your business up as an LLC, your personal assets are not on the line.
You will enjoy protection from any present and future liabilities or judgments against the business without having to incorporate as a complete corporation; the LLC structure provides legal pass-through separation of the business and the business owner in the eyes of the IRS and any courts involved in disputes.
Pass-Through Taxation Are the Benefits of an LLC
Another core benefit of an LLC involves taxation. Your business doesn’t pay income taxes on profits; profits – or losses – are passed along to the business owner and you report them on your personal tax returns. All taxes due to the IRS are paid at the individual level, by the individual (or individuals, if there’s more than one owner).
Additionally, business owners with investments in the business may deduct business expenses used by the LLC, lowering their own individual tax costs.
Flexibility with Taxation Structure
Flexibility in tax structure is extraordinarily handy for modern entrepreneurs, especially in an era of regularly-shifting tax codes at state and federal levels. LLCs share many similar qualities as other popular business structures – like an S-Corp – while enjoying more flexibility and usually necessitating less paperwork, helping keep your business lean and agile.
The IRS does not consider an LLC business to be a distinct separate entity from its owner. This means that the IRS typically will not tax the LLC directly – at least at the start. On the contrary, members of the LLC get to determine how they want to be taxed, and they have numerous choices.
- For single-member LLCs (just one business owner), the business is taxed like a sole proprietorship (SP). The business’s profits and losses aren’t taxed directly, but rather they are taxed through the single member’s personal federal tax return. (This is because, typically with a single-owner LLC, the profits from the business are the individual’s personal income.)
- For an LLC with multiple partners, members may also choose to be considered a traditional partnership for their taxes. The choice is their own.
- For an LLC filing as a Corporation, the owners or members of the organization may also choose to file as if they were corporation.
LLC Benefits the Business with Credibility
Forming an LLC is a formal decision that shows an honest commitment to the business. Once made, “LLC” can legitimately be appended to the business name on all communications. This can bring some swift credibility to any newly established business.
Think about it, would a potential customer trust you more if you're a contractor or a legitimate business entity? Even successful entrepreneurs with hits in the past need to assure customers and investors as well as any potential partners the business associate is safe business to associate with, to work with, to buy from, etc.
Contact Dennehy CPA for the Benefits of an LLC
Are you looking to learn more about the benefits of an LLC? Or are you looking to learn the best business entity for your company? In either case, the experts at John F. Dennehy Jr. CPA, PC can help you understand all of the benefits of an LLC and guide you toward the best solution.
In addition a wide range of business consulting services, we offer accounting services on demand to help simplify your life, such as:
Contact the expert team of accountants at John F. Dennehy Jr. CPA today for assistance structuring your business.