In deciding which legal entity is best for your organization, you will want to consider possible tax benefits and ways in which you might be able to minimize your business’s tax liability. Limited liability companies (LLCs) are one of several structures from which a new business can choose during its formation. If you have not yet examined the various tax advantages you can attain from selecting an LLC, then it’s time to speak with a knowledgeable business lawyer. Capstone Legal Strategies can guide you by explaining what you need to know about LLCs and taxes.
The Most Popular LLC Tax Benefits
Tax issues rank high among a business’s most important considerations when deciding which type of legal entity under which to organize. With respect to taxes, an LLC can benefit the business by allowing the following:
- Pass-through taxation: While corporations experience double taxation (first on annual profits and then on shareholder dividends), the LLC’s profits are only taxed once. Tax liabilities “pass through” the LLC directly to the owners, who then report the taxes on their individual returns.
- Self-employment taxes: LLC members can choose an S corporation tax status, which allows them to pay themselves a reasonable salary and then pay a self-employment tax only on that amount. This effectively reduces the amount of self-employment taxes that are ultimately paid out.
- Simplified tax filing: Pass-through entities like LLCs are not required to file complex corporate tax returns. This simplifies the filing process and saves money in tax preparation expenses and filing fees.
- No restrictions on LLC ownership: There is no limitation on the number or type of LLC owners that your organization can have. This means that various individuals and entities, including corporations and other LLCs, can participate in ownership and thereby enjoy pass-through tax benefits.
Strategies for Minimizing Taxes
In addition to the above (and other) tax advantages of the LLC, you should consider options for minimizing your tax bill. These are a few that you can discuss with your business lawyer:
- Tax status flexibility: LLCs can choose how they are taxed, for instance as a sole proprietorship, as a partnership, or as a corporation. This allows the LLC to maximize its tax situation and limit tax liabilities based on changing tax and business circumstances.
- Tax deductions: LLCs should take advantage of all available business expense deductions, with common ones being rent, utilities, and supplies. Deducting these directly from the LLC’s business income will reduce the overall amount of taxable income that is passed to its members.
- Qualified business income deduction: Recent legislation allows certain LLCs to claim a tax deduction of up to 20% of their qualified business income. This offers a potentially significant benefit that your LLC needs to know about.
Learn More About Benefits and Strategies
The above are by no means the only advantages of having an LLC, or the ways in which your company can possibly save more on its tax bill. The nature of your LLC, its assets, and other factors may allow additional benefits and savings. The best way to learn more about these is to retain an experienced business law attorney who can review your company and advise you on the tax options that might be available. Get started today by reaching out to Capstone Legal Strategies.