Why you should look into LLC formation

Whether you are a sole proprietor running a small business or part of a partnership or simply someone looking for ways to invest some resources, looking into Limited Liability Company options would be a very practical move.

Why you should re think your business arrangements as a sole proprietor or a partnership.

Partnerships and sole proprietorships are fine but they may not have the features you need to further maximize your business. Partnerships and sole proprietorships do not offer limited liabilities on business losses and debts. This allows banks and other creditors to go after your assets outside the company. You may even lose everything to creditors collecting on debts.

The taxation on partnerships and self employments is another thing to note. You are paying more taxes that you really have to. You have to pay for the typical income tax on the business income and also an additional self employment tax. That basically is the tax on all the profits you make on the business. In fact most of the time people pay more on self employment taxes than their income taxes.

How is LLC formation an answer?

You can set up a Limited Liability Company (LLC) to run your business. Doing this will give you the advantage of having limited liabilities on potential debts and losses suffered from the company's business dealings. One other thing you can get out of this is tax advantages. The members or owners of a Limited Liability Company can choose how their business is going to be taxed. The owners of the LLC can basically choose an option that will require the lowest tax payments. Single member Limited Liability Companies can be considered as sole proprietorships. They can also be counted as C or S type corporations. Limited Liability Companies that have more than one member or owner can be classified as partnerships. They can also be classified as S or C corporations.

A C corporation is taxed as an entity independent of its members. S type corporations do not get their own taxes. This means that the corporation itself is not taxed as an entity but the members are instead responsible for the taxes depending on their stakes in the corporation.

How is this going to help reduce tax payments?

You do not have to continually pay self employment taxes running your business as a sole proprietorship. You can set up a Limited Liability Company and use it to run your business. You can then choose to classify the LLC under an S corporation for pass through taxation. Doing this will give you the benefit of not having to pay for self employment taxes anymore. All taxes will go straight to your income tax payments.

Opting for your LLC to be classified as a C corporation will give you an entirely different set of advantages. This will allow owners to utilize various corporate perks in terms of tax free benefits to themselves. Doing this can save a ton in tax payments.

Is LLC formation hard to undertake?

No. Depending on which state you are in, there are only about five simple steps in setting up a Limited Liability Company. You can do this on your own or you can use LLC incorporation kits. Some states even allow online filing. You can accomplish the entire undertaking in a few days. On some states it will take up to several weeks though.