Advantages of having a LLC?
- Thread starter BOAISSO
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There are different ways you can elect to tax an LLC - See How LLCs Are Taxed for details, and talk to a tax professional for further information. Limited liability protection is also involved (hence the name) - LLC Basics .
I went from a simple partnership to an LLC just to have more formal of a business structure, and some liability protection among my ventures (not just affiliate related).
I went from a simple partnership to an LLC just to have more formal of a business structure, and some liability protection among my ventures (not just affiliate related).
a couple quick highlights:
elect s corp taxation, pay yourself "reasonable" salary, take the rest as dividend and avoid the 15.3% self employment tax you're paying now
llc gets its own EIN (like a ssn for companies) and is basically its own entity. you dont have to plug your personal information in to sponsors, etc.
as previously stated the "limited liability" part of llc is pretty important too
elect s corp taxation, pay yourself "reasonable" salary, take the rest as dividend and avoid the 15.3% self employment tax you're paying now
llc gets its own EIN (like a ssn for companies) and is basically its own entity. you dont have to plug your personal information in to sponsors, etc.
as previously stated the "limited liability" part of llc is pretty important too
So many people just assume that you need to incorporate. Sure, your accountant would love if you got an LLC or S-corp, it's more work and $$ for him. But it's not a clear-cut decision.
There are a couple of distinct advantages that incorporating does have over being a sole prop: liability protection and perhaps it lends an air of legitimacy about your business. If you need these, then by all means, go ahead and incorporate.
Otherwise, from a pure tax standpoint, there's a misconception that there are more tax breaks available to corporations than to sole proprietors. There are not. The costs are different and you (or your accountant) need to look at your own circumstances to figure out which structure is better for you.
As an S-corp, as mentioned above, you still have to pay yourself a reasonable salary, which is subject to SE tax. However, social security, which comprises most of the SE tax, maxes out at about 100k or so. So if you're making a lot more than 100k, the SE tax is not as large of a hit. Bottom line: you do save some money as an S-corp, how much depends upon your income and what you're claiming as your salary.
On the downside: There are state-specific franchise taxes that you may need to pay. As an S corp in California, for example, you must pay the greater of $800 or 1% of your profit. That's every year. This is not something you need to pay if you're a sole proprietor.
Also, you obviously have a lot more paperwork, with additional withholding, etc. So factor in the actual cost of incorporating and all the additional ongoing paperwork.
Sooooo.....there is no simple answer.
Oh, one more add: you don't need to be an LLC or corp to get your own EIN. Any entity type can get one.
There are a couple of distinct advantages that incorporating does have over being a sole prop: liability protection and perhaps it lends an air of legitimacy about your business. If you need these, then by all means, go ahead and incorporate.
Otherwise, from a pure tax standpoint, there's a misconception that there are more tax breaks available to corporations than to sole proprietors. There are not. The costs are different and you (or your accountant) need to look at your own circumstances to figure out which structure is better for you.
As an S-corp, as mentioned above, you still have to pay yourself a reasonable salary, which is subject to SE tax. However, social security, which comprises most of the SE tax, maxes out at about 100k or so. So if you're making a lot more than 100k, the SE tax is not as large of a hit. Bottom line: you do save some money as an S-corp, how much depends upon your income and what you're claiming as your salary.
On the downside: There are state-specific franchise taxes that you may need to pay. As an S corp in California, for example, you must pay the greater of $800 or 1% of your profit. That's every year. This is not something you need to pay if you're a sole proprietor.
Also, you obviously have a lot more paperwork, with additional withholding, etc. So factor in the actual cost of incorporating and all the additional ongoing paperwork.
Sooooo.....there is no simple answer.
Oh, one more add: you don't need to be an LLC or corp to get your own EIN. Any entity type can get one.
Forming an LLC is not incorporating, and is a pass-through as far as taxes are concerned. There are no differences in your taxes if you have an LLC or no entity. It's all schedule c income.
That being said, spend a few bucks and talk to a good small business accountant before doing anything. Setting things up correctly now can save you thousands in the long run.
That being said, spend a few bucks and talk to a good small business accountant before doing anything. Setting things up correctly now can save you thousands in the long run.
That's only true if you're a single-member LLC. If you have one or more partners, taxation is handled like a partnership, and gets more complicated.
Having an LLC does not necessarily mean a partnership tax structure. You can elect to either be taxed like a partnership (pass-through) or as an S-Corp. You really need to talk to a tax professional in your state who is experienced with business taxes to find out all potential upsides and downsides of choosing an LLC taxed as a partnership, LLC taxed as an s-corp, and a straight-up s-corp.
qft. any judge will pierce the corporate veil in a heartbeat if you're a single one person corporation
Not true. As long as you keep separate bank accounts, credit cards etc, and never mix personal funds with business funds, and are not accused of using the business in a criminal enterprise, they are prevented by law from doing that.
I had a single person LLC sued before, so I know. Maybe it depends on the state, but the one I had sued was formed in Delaware, and they're laws are pretty pro-business.
Basing on UK law;
LLC companies main rational is the limited liability for debts. The directors are not liable for the debts (barring exceptions) nor the shareholders (up to share price only and then only to company).
So if company X is a LLC and has £2000 debts and only £1000 assets, if claimed under insolvency law etc (barring floating/fixed charges etc) only the £1000 can be claimed as it is the assets of the company. So even if you are a millionare you will not have to pay the debtors (barring exceptions).
LLC companies main rational is the limited liability for debts. The directors are not liable for the debts (barring exceptions) nor the shareholders (up to share price only and then only to company).
So if company X is a LLC and has £2000 debts and only £1000 assets, if claimed under insolvency law etc (barring floating/fixed charges etc) only the £1000 can be claimed as it is the assets of the company. So even if you are a millionare you will not have to pay the debtors (barring exceptions).
yeah, actual rulings seem to be hit or miss, but there are enough examples to make you put some thought into how you want to structure things
Warning: Single Member LLCs Lack Asset Protection
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