So you have your own business. How do you keep your liability low and save money on taxes?

  • You might want to look into forming a Limited Liability Company also known as LLC.  A LLC is the merging of corporate structure and partnership structure of business, but in a simpler form.  With a LLC there is much less administrative paperwork and record keeping than for a corporation.
  • In most states having a LLC name will prevent someone else going into business with your LLC name, but only in the registering LLC’s State.
  • Owners of a LLC have the liability protection of a corporation. A LLC exists as a separate entity much like a corporation. Members/owners cannot be held personally liable for debts unless they have signed a personal guarantee or unless fraud or misrepresentation has occurred.
  • LLC is simpler to form than a corporation and has lower tax obligations.  Single owner LLC may use Schedule C on his personal tax return.  Multiple owners is a Partnership LLC and may be reported on IRS 1065.  Either single or multiple owners may elect to be set up and taxed as C or S Corporations.  With the S Corporation being the simplest to set up and run.
  • The District of Columbia, for one, considers LLCs to be taxable entities, thus eliminating the benefit of “flow-through taxes” by subjecting members to double taxation. Under these circumstances, LLCs will usually choose to be taxed as a partnership to avoid double taxation, which occurs in corporations. This allows companies to distribute their income among members who then report it on their personal tax returns.
  • Many states have a franchise tax or capital values tax on LLC’c some of these are Alabama, California, Kentucky, New York, Pennsylvania, Tennessee and Texas.  This franchise tax is usually small compared to corporation tax liability savings and financial legal liability risk reduction.
  • It is urgent to note that Single owner must have separate bank account for the LLC and pay himself from that account.  The single owner may still report profit/loss on his personal income tax, but there must be a separation of funds in the day to day operation.  For example: Do not pay the household electric bill from the LLC checking account directly, but write a check from LLC to personal account then pay personal household electric bill from personal account.
  • There are many benefits of creating an LLC which make it worth the initial application form completion and the initial fees.  Taking time to investigate your State’s policy will be worth your time to assure your legal standing for taxes and daily function.  There is some recognition with International LLC’s that is imperative to investigate.
  • You need to check out your states regulations and complete the forms.  You do not need to pay an online company or a lawyer to do these forms, for single owner or basic simple partnerships.  Obtaining the filing forms and regulations from your home office state will insure you are compliant in your place of operation.
  • Search for www.state.PutNameofYourStateHere.us  to find out your local information

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