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High Gas Prices Reduce Taxes Article
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LLC Tax Savings
from:If you’re in business for yourself, it may be wise for you to form a limited liability company, or an LLC. LLC tax savings come in several forms, and may be a wise way to save your business money.
LLC companies are subject to “pass through taxation”. This means that the owners report their share of profits or losses in the company on their individual tax returns. The company itself is not taxed. This is unlike C corporations, where company profits are taxed at the corporate level, but each shareholder is also taxed on their individual dividends. Therefore, if your company is small, with just a few shareholders, the LLC tax savings can be significant for these owners/shareholders.
If you’re the only owner of an LLC, the government will essentially tax you like a sole proprietor. If there are multiple owners, the IRS will tax you as a partnership. But, again, if a company is owned by just a few people and the company really “is the owner”, there are LLC tax savings to be realized because the government doesn’t get to tax you both at the personal level and the corporate level.
In addition to the LLC tax savings you’ll see by forming your company this way, being an LLC is likely to reduce your chances of being audited by the IRS. Statistics have shown that non incorporated tax payers that file Schedule C for their businesses run between a 2 and 3 percent chance of being audited. However, LLC’s run about a 0.33% chance of being audited. So, in addition to LLC tax savings, you may see some other benefits of forming your company this way. Avoiding an audit is something we’re all striving for!
When you’re ready to turn your business into an LLC, talk with your tax advisor and your attorney. LLC regulations differ by state, so you’ll need to find an attorney with expertise in your state’s laws to help you incorporate. But, before you do so, it’s helpful to find out from your tax advisor the exact implications of your business being an LLC, as opposed to a partnership or sole proprietorship. Once you’ve determined all the facts, you can decide the right form of entity for your business.
Understanding all the tax implications of owning your own business can be tough. But, it pays to be informed since the way your business is set up and runs can have a huge financial impact on the finances of the business and your own personal finances, too.
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