Benefits of creating an llc [Pictures]

Last updated : Sept 3, 2022
Written by : Claud Mass
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Benefits of creating an llc

What is the downside of an LLC?

Disadvantages of creating an LLC Cost: An LLC usually costs more to form and maintain than a sole proprietorship or general partnership. States charge an initial formation fee. Many states also impose ongoing fees, such as annual report and/or franchise tax fees. Check with your Secretary of State's office.

What are the four main advantages of an LLC?

  • Fewer corporate formalities.
  • No ownership restrictions.
  • Ability to use the cash method of accounting.
  • Ability to place membership interests in a living trust.
  • Ability to deduct losses.

Is a LLC a good idea?

An LLC's simple and adaptable business structure is perfect for many small businesses. While both corporations and LLCs offer their owners limited personal liability, owners of an LLC can also take advantage of LLC tax benefits, management flexibility and minimal recordkeeping and reporting requirements.

How is LLC taxed?

Working of LLC Taxes For the purposes of federal income tax, LLCs are treated as pass-through entities, which means that LLCs themselves do not pay taxes on their business income. It is rather its members who pay the taxes on their share of LLC's profits.

What should I put for purpose of LLC?

Statement of Purpose. Most states do not require you to be specific about the purpose of your LLC. Instead, a statement such as "The purpose of the Limited Liability Company is to engage in any lawful activity for which a Limited Liability Company may be organized in this state" is usually sufficient.

What does LLC mean for dummies?

A limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.

Why is LLC so popular?

The LLC has become a popular small business structure in the United States, because it's easy to form, and very flexible in the types of businesses for which it's well suited.

What are the 2 main advantages of having an LLC?

  • Limited liability. Members aren't personally liable for actions of the company.
  • Management flexibility.
  • Easy startup and upkeep.
  • Limited liability has limits.
  • Self-employment tax.
  • Consequences of member turnover.

Is it better to be self employed or LLC?

You can't avoid self-employment taxes entirely, but forming a corporation or an LLC could save you thousands of dollars every year. If you form an LLC, people can only sue you for its assets, while your personal assets stay protected. You can have your LLC taxed as an S Corporation to avoid self-employment taxes.

How much can an LLC write off?

If your LLC has only one member and your startup costs are $5,000 or less, you may deduct $5,000 in organizational expenses in your first year. If your costs exceed this amount, though, you have to capitalize all of these expenses and they are not deductible until you dissolve your LLC.

Can my LLC pay for my cell phone?

A corporation can only deduct expenses that it incurs. If your cell-phone is registered to you (and not your corporation) and you use your cell phone partially for business purposes, then you can 'charge-back' the business use portion of your cell phone bill to your corporation.

How do LLCs avoid taxes?

A general Corporation making a Subchapter “S” Election or an LLC with or without a Subchapter S Election pays no federal tax on its taxable income and no employment taxes on its distributions to stockholders.

Who has the most power in an LLC?

The President is essentially the highest ranking manager in the LLC. The Operating Agreement typically gives the President general management powers of the business of the LLC, as well as full power to open bank accounts. Other titles of LLC officers and managers are Secretary and Treasurer for example.

When did LLCs become popular?

Because the LLC is a fairly new option in the United States (it first became available in Wyoming in 1977, but most other states did not follow suit until the 1990s), the laws governing this business form are largely uninter-preted by court cases.

What is LLC entity purpose?

The purpose of an LLC, or a limited liability company, is to shield the business owner from personal liability for the company's debts. Most states allow residents, individuals who live outside the state or country, other LLCs, corporations, pension plans, and trusts to serve as LLC owners.

What are the 3 types of LLC?

  • Single-member LLC for the sole-proprietorship (solo entrepreneur)
  • Multi-member LLC (member-managed LLC or manager-member LLC)
  • Domestic LLC and Foreign LLC.
  • Series LLC.
  • L3C Company (low-profit LLC)
  • Anonymous LLC.
  • Restricted LLC.
  • PLLC and LLC.

What can I write off as a single-member LLC?

The most obvious but lesser-known benefit of operating as a single-member LLC is that it lets you deduct the expenses that might not be tax deductible otherwise. Many single-member LLC owners who work from home write off their personal expenses for their vehicle, mobile phone, or internet services as business expenses.

What is the owner of an LLC called?

If you own all or part of an LLC, you are known as a “member.” LLCs can have one member or many members. In some LLCs, the business is operated, or “managed” by its members. In other LLCs, there are at least some members who are not actively involved in running the business.

Why is LLC the best option for small business?

LLCs are the favorite business structure among small business owners because LLCs provide personal liability protection like a corporation with the simplicity and pass-through taxation of a sole proprietorship.

When should I choose an LLC?

What Types of Businesses Should Choose an LLC? If you do not plan to raise any money through investments business, might want asset protection, and would like to have a flexible management, an LLC may be your best option.

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Benefits of creating an llc

Comment by Eduardo Placeres

hello and welcome today we are going to be talking about seven benefits of having an llc and if you've been following this channel for any period of time you'll know that llc's are pretty much the bee's knees when it comes to yes i said that when it comes to business entities because they are so amazing and they give you so much benefit for very little amount of effort so um before we get started i just wanted to introduce myself my name is taylor darcy from think legal and i am here to help you create the business of your dreams so welcome i look forward to getting to know you and please feel free to leave comments uh we go live every weekday except for holidays 11 a.m to answer your questions and to just hang out and find out what you need to help your business so that not only can i help you with it but that you can get real answers to your questions so please join me if you can at 11 a.m pacific standard time monday through friday obviously except for holidays the number one reason why a llc is has significant amounts of benefit is that it is a it's a hybrid organization a sole proprietor you're taxed on your earnings your revenue period that's just how it is so whatever you bring in minus your expenses uh that's what you're going to be taxed on the the same thing is true for an llc in fact a sole member llc is what's called a disregarded entity for tax purposes the irs looks at it and says nope that income goes straight to the person and so it's it's what's called pass-through taxation so you're not running the risk of double taxation which is what's true in a corporation so that's really one of the big big reasons that you wanted an llc is because of that pass-through taxation the it gives you the benefits without the downside of a corporation it's that's it's it's almost perfect it's not completely perfect it's not it's just very very good very very close it's it's also similar to if for a multi-member llc is similar to a partnership and and it runs similar to a partnership so keep that in mind it has llc rules but for tax purposes especially it's the same thing it's it's 50 of the profit is distributed unless otherwise agreed on so it's it's very very simple comparatively to a corporation to start to manage to things and and it provides you with perhaps one of the biggest benefits and this is why you would do this for a sole proprietor and a partnership is it provides you with limited liability protection which the typical version is that you are limited to the amount of money that you invest or property that's invested into that entity so the best example i can give you is if you have an llc that's done for a rental property then you the only thing that's at risk is the home that's in the rental property or that's the rental property rather than your personal assets especially if you have multiple homes uh or multiple rental properties and so one of the questions i get asked quite frequently is should i have one llc and then have all my homes in it or should i have an llc for each home if i have a rental property and the very easy answer is that you should have each home should have their own llc because then that way that's the most that they can attach assets if there was ever an issue that you needed to worry about that with so that's that's the easy answer to that now each situation is different so don't you know keep that in mind that you want to make sure that you're you're consulting a cpa for your accounting needs or you're consulting a attorney for your legal needs because otherwise you could run the risk of doing something like this is just general overall advice for you so keep that in mind as we discuss these issues that your state may have specific differences that may make one better than the other um the other the next part of it is not only does it it pass through taxation it's easy to operate it protects your personal assets as i said earlier so especially if you have like a 401k instead of uh or or any other type of of substantial assets stocks bonds mutual funds if if you were to be sued without an llc or a corporation for that matter then they could attach to your personal assets a big thing you want to avoid benefit of an llc is that it's easier to transfer or sell than a sole proprietor or partnership because it's an actual entity the entity owns all of the product services the products the assets uh real property uh tangible property and we talked about this a little bit yesterday in by or in previous video about buying and selling a business with an llc if everything is owned by the llc it's a simple transfer document to transfer it as opposed to you would literally have to transfer all the assets and everything that goes with it into another entity in order to transfer so it's a lot more work especially if you're ever considering and i mean ever considering transferring your ownership to a different person like you want to retire and you want to sell your business it's always better to have it as an llc than it is to try to do it as a sole proprietor so if that's something that's on your horizon you know yesterday is the best time today is your next best time to start that to do this so you really want to start looking at your goals and if if selling it is going to be part of that you want to make sure that you're preparing now because it only gets more complicated the older you get and and that's why you need to sit down and talk with an attorney for business planning um that so that we can help identify your goals and then make it so that you're getting what you need to to reach those goals the other thing that is very advantageous over a sole proprietor or partnership is that you can get investors if needed you can bring them on as part member and or have a position it opens the door to getting more money now a lot of investors are going to ask for c-corp and can always convert from an llc to a c-corp but especially if you're beginning that might be a little premature so keep that in mind that depends on the investor and depends on the type of money that you're getting so don't don't think this is a it's just easier than as a sole proprietor you're limited to debt only pretty much there's no real equity investment and so it's it's less expensive debt is always less expensive than equity but it's it's harder to get from a because of the risks that go with debt just it just is like lenders are harder to get than equity holders for uh for additional capital and that's that's crucial to know because again this is about planning for your future and not just winging it and if you're planning on or if you need investors then you're definitely going to want to set your business up for that type of success uh so that you can make sure that you're taken care of in in those instances so sitting down with an attorney and giving them exactly what you need can give you the the best outcome for the least amount of money because we can there's a we can fix a lot of things but the problem is is the more difficult it makes it or it gets the more likely it is going to be that it cause it costs more money and it's j

Thanks for your comment Eduardo Placeres, have a nice day.
- Claud Mass, Staff Member

Comment by Jacinta

as of 2021 there are 31.7 million business owners in the united states many business owners are setting up llc's one out of every six taxpayers that comes to my office owns an llc i own six llc's and i've set up over 5 000 llcs for my clients l to the l to the c i love saying llc because it reminds me of ll cool j llc's are the most popular business vehicles that business owners set up why is it that most business owners who have llc's aren't sure if they should be in llc's my name is carlton dennis and in today's video we are going to go over what you need to consider before setting up an llc llc owners make a lot of mistakes i'm sorry and in today's video i need to point out some of the mistakes that you need to be conscientious of before establishing your llc let's dive in mistake number one is not knowing the type of income you're receiving prior to setting up your llc this is really important and reason why is because there are three different income types you could be receiving and it could determine whether or not you need an llc versus an s corp or a c corporation the three different income types that you need to be familiar with are number one ordinary income ordinary income is everyday income that you work for and is typically in the form of w2 wages or 1099 compensation the next form of income is passive income passive income is income you technically do not have to work for typically you're familiar with passive income from investment properties or interest that you earn off of the money that you have in your bank account the third type of income is portfolio income portfolio income is typically income that you receive when you decide to sell capital assets or if you have capital gains tax from the sell of a rental property these three types of income are important for us to know because it can help us decide whether or not it makes sense for us to have an llc so let's talk about it number one passive income if we have passive income what we have to understand is that passive income is not subject to social security tax or medicare tax that ordinary income is subject to so when you think about it it may not make sense for you to worry about whether or not you have to eventually transition your llc to an s corporation if you have rental real estate if your income is passive you don't have to worry about self-employment tax so typically a lot of real estate investors will establish llc's for their real estate holdings so if you ever had the question in your head why do people set up llc's as opposed to c corps or s corporations for their real estate a big deciding factor around this is because real estate investors are not subject to the social security and medicare tax that ordinary income earners are subject to this leads me to ordinary income ordinary income is the income you're familiar with when you're working a job where you are putting in labor anytime you're putting in labor you're going to have to pay into social security and you're going to have to pay into medicare taxes and if you decided to become a business owner that means you pay into self-employment tax it's been talked about in all of my youtube videos if you've seen them now one thing that you have to understand about ordinary income is that ordinary income you will pay 15.3 self-employment tax which is your social security and medicare but then you will also pay your federal taxes and your state taxes so knowing that ordinary income is subject to self-employment tax federal tax and state tax we have to define what type of business owners need to know that their business is actually ordinary income instead of passive business let's talk about that i have clients all the time that'll get on the phone with me and tell me carlton i have a passive business i started amazon automation i'm doing amazon fba i'm selling products on etsy i have my online shop any of these clients that i talk to that have these businesses that are very automated had to work to get to a place where their businesses are automated they sat on the computer they figured out how to put up ads build their website hire the contractors and someone else is doing the fulfillment and dropping off the orders to the house that is a business that requires work and if labor is involved we are subject to social security and medicare taxes federal and state taxes so i just wanted to make sure that when we go into setting up a llc that we also understand which type of businesses are ordinary income businesses and truly understanding what would be considered a passive business last but not least is portfolio income i don't really get too much into the portfolio income unless i'm dealing with my real estate investors which i primarily focus on if you happen to have real estate income and you decide to sell an investment property you're dealing with capital gains it could be short or long-term capital gains depending on how long you held on to that asset but if you're aware of capital gain income you might realize that this is actually categorized as portfolio income to your tax account so understanding these three types of income can let us know whether or not you should have an llc that's going to remain as an llc or if you have an llc that will eventually be switched to an s corporation or another desired entity structure mistake number two with llcs is not establishing your llc prior to knowing that you wish to have a real estate acquisition it comes up pretty often that i get on the phone with a client that told me that they just bought an investment property and now they're trying to decide whether or not it makes sense for them to have an llc and i sometimes wish that they would just have a conversation with me prior to them buying the rental property because then i might have advised them to establish the llc prior to buying the rental property so that they can buy the property in the name of the llc that they establish for themselves this is a way that we can completely avoid having your name ever online at the accounting assessor's office saying that you're on title for owning the property but then we get to a place where you want to have that asset protection because you find out that someone could slip and fall and hurt themselves inside of your property so you eventually want to have an llc for liability protection but the property is already in your name so now we have to decide does it make sense to set up an llc and do a quick claim deed and re-title your property in the name of the llc well this is where we can run into some issues at least i've had clients run into issues one of the issues that they run into is this whole do on sale clause where now there's a stipulation in their mortgage agreement that says that anytime a property is being transferred or sold that the mortgage is now due so this is where we have to be extremely careful and mindful prior to establishing llc's into investing in real estate we have to speak with the tax pro we have to speak with our mortgage company we have to determine if we can purchase a rental property in the name of an llc and if you're setting up

Thanks Jacinta your participation is very much appreciated
- Claud Mass

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