Learn How to Start an LLC & the Tax Benefits of an LLC

Tax Benefits of LLC

Learn about the tax benefits of an LLC, how to start one, and how to connect with an experienced attorney to help you set one up.

What Is an LLC?

An LLC, or a limited liability company, is the simplest form of registering your business as a separate entity from yourself. This way, you protect your personal assets should someone sue your business or you have unpaid debts. The legal community calls this method of protection “the corporate veil”. In short, an LLC is its own legal entity responsible for its own lawsuits or debts, meaning that your home, car, and other assets are unavailable for the taking if your business goes under.

An LLC is vital for establishing credibility as a business and protecting against identity theft. It is the perfect place for a small business to start.

Anyone can start an LLC, even non-U.S. residents and citizens. It is a great solution for those looking to do business in the U.S.

Sole Proprietorship vs. LLC

Many find sole or joint proprietorships appealing because both are easier to start. They also allow entrepreneurs to separate their business world from their personal world, but proprietorships do not prevent you as an individual from a lawsuit if, for example, someone sustains an injury on your shop premises. An LLC would prevent this, and only your business, as opposed to you as a private citizen, would absorb the lawsuit.

What Are the Tax Benefits of an LLC?

The IRS does not have a separate classification for taxing LLCs, so the real benefit lies not in the taxes themselves, but in choosing how to be taxed. Essentially, you decide whether the business owners pay the taxes on their personal tax returns or if the business itself pays. You have several options for deciding on LLC taxes.

Single-Member LLC

As a single-member LLC, the IRS ignores the LLC and taxes you as it would a self-employed individual. You simply report the business income on your personal taxes at the end of the year.

Multi-Member LLC

With a multi-member LLC, the LLC does not pay any income taxes and all the business profits pass through to the members. The members then pay the tax on the profits through their individual tax returns.

S Corporation

In this case, LLC members bear responsibility for profit taxes, even if the members do not actually receive profits.

State Taxes

LLCs may also pay state taxes, and this varies by state. Because the individual LLC members pay the state tax, the LLC itself is not taxed, but it may still need to pay franchise tax, sales tax, withholding tax, and/or unemployment insurance tax.

If you feel unsure how to maintain the best tax benefits of an LLC, consult an experienced attorney and accountant.

How to Start an LLC

The steps to starting an LLC vary by state. So, starting an LLC in Missouri may differ from starting an LLC in Colorado. Consult a local attorney to understand the specifics of your state.

Step 1: Choose Your State

For most business owners, you want to choose the state in which you live and reside and plan to run your business. However, if your business has any physical presence in a different state, you need to register an LLC for every state it will be in. Consult a state LLC attorney to help you as you proceed further into this process.

Step 2: Name Your LLC

You must choose a name for your LLC that includes the phrase “limited liability company” or its abbreviation. The name cannot include words that could be confused with a government agency (such as the State Department or the CIA), and if you want to use any restricted words, you need to do more paperwork. Your lawyer can help you with this process to lower your chances of receiving a registration denial.

Step 3: Choose a Registered Agent

Choosing a registered agent is critical to a successful LLC. A registered agent resides in the state of your LLC and receives official correspondence on your behalf to get it to you hastily.

Step 4: File With Your State

Once you complete all the previous steps, you need to file your LLC within the state. The document you must file is most commonly known as the “Articles of Organization,” although it may be known elsewhere as the “Certificate of Organization” or “the Certificate of Formation.” Your attorney knows what this is called within your state and fills it out and files it on your behalf.

Step 5: LLC Operating Agreement

The next document to create is the LLC Operating Agreement, which outlines your LLC’s ownership and member roles. This is not necessarily required by most states, but have one in case future issues arise among members.

Step 6: Get an EIN

Finally, you must apply for an Employer Identification Number, which is basically a Social Security number for your business. You need this to pay taxes for your LLC, hire employees, and open business bank accounts.

Work With an Experienced Local Lawyer

If you feel ready to protect your assets and make choices about tax payments, then start an LLC. Hire a lawyer today to get the process started and your business on track to success.

Submit a request online or call us today at (866) 345-6784 to get in touch with an experienced lawyer in your area!

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