Tax Benefits of LLCs

It’s no surprise, most of us don’t enjoy taxes. The process is often frustrating and confusing, and becomes even more so for business owners. There are an overwhelming number of options and forms to complete. Generally, the simpler you can make the process, the better. This is also why many business owners we work with choose to identify as an LLC, or limited liability company.

Why should you organize your business as an LLC? Well, there are many benefits to this format of identifying your company. One plus side is that LLCs tend to go through much less paperwork than C corporations and S corporations. Yet, they are still protected against personal liability. However, the greatest benefit to filing as an LLC comes in the form of tax recognition.

Income Pass-Through

When an LLC goes to file taxes, they are entitled to what is known as “pass-through.” This is when a company does not pay federal taxes on their income. Instead, individuals that are paid by the company pay taxes on this money. This is distinctly separate from a C corporation, which is impacted by double taxation.

Filing Flexibility

Another added tax benefit of a company identifying as an LLC is the flexibility this title affords the business when filing. The IRS (or Internal Revenue Service) permits LLC business owners to decide which way their business will be taxed. Depending on the number of owners, a company choose to be taxed as a sole proprietorship, a partnership, or an S or C corporation. While there are specifications under each of these headings, this makes for a simpler and more comfortable form of filing one’s taxes.

If your LLC files their taxes as a sole proprietorship, you will need to utilize an extra form (your individual tax form along with a business profit/loss form). Filing under the label of a C corporation, your company’s profits could potentially be taxed twice. As an S corporation, there will be an extra form but no double taxation. Also, if your company files as a partnership (only for multi-owner LLCs), this label too will give you an extra form to fill out.

Business Deductions

LLCs can take advantage of tax deductible business expenses regardless of how the tax treatment chosen, including the costs associated with forming the LLC.

In the end, forming an LLC can benefit your business when doing your taxes. However, you will want to use a tax professional to assist with proper forms to receive correct taxation when it comes time to file. For more information on how we work with LLCs to maximize their returns, contact us today.