Does an LLC help with taxes [Explained]

Last updated : Sept 10, 2022

How does my LLC affect my personal taxes?

The IRS disregards the LLC entity as being separate and distinct from the owner. Essentially, this means that the LLC typically files the business tax information with your personal tax returns on Schedule C. The profit or loss from your businesses is included with the other income your report on Form 1040.

Why is LLC better for taxes?

LLCs avoid double taxation while enjoying personal liability protection. Unlike a corporation that pays taxes twice on the same profit, first as business income and then again as owner income, LLC shareholders are only taxed once on profits in their personal income.

Do LLC pay less taxes than individuals?

The true advantage of an LLC over other business entity types comes in the form of tax benefits. LLCs, give business owners significantly greater federal income tax flexibility than a sole proprietorship, partnership and other popular forms of business organization.

How do people use LLC to reduce their taxes?

As an LLC owner you're able to reduce taxes by: Claiming business tax deductions. Using self directed retirement accounts. Deducting health insurance premiums. Reducing taxable income with your LLC's losses.

How much can an LLC write off?

If you have $50,000 or less in startup costs and are in your first year of business, the IRS allows you to deduct $5,000 in startup costs and $5,000 in organization costs as a tex deduction. If your startup expenses exceed $50,000, the total deduction will be reduced by however much your expenses exceed $50,000.

What can I write off as an LLC?

1. Car expenses and mileage.
2. Office expenses, including rent, utilities, etc.
3. Office supplies, including computers, software, etc.
4. Health insurance premiums.
5. Business phone bills.
6. Continuing education courses.
7. Parking for business-related trips.

Is it better to be a 1099 or LLC?

The biggest difference between an LLC and an independent contractor is the fact that LLCs are required to register with the state and form business documents like articles of organization. LLCs also offer liability protection that independent contractors would not have otherwise.

What are the benefits of having an LLC?

• Limited Personal Liability.
• Less Paperwork.
• Tax Advantages of an LLC.
• Ownership Flexibility.
• Management Flexibility.
• Flexible Profit Distributions.

Can IRS come after an LLC for personal taxes?

While the IRS can't levy your business account for your personal back taxes, the IRS can freeze and seize your company's assets to satisfy your tax debt if your business has a sizable tax liability. In most cases, for the IRS to implement a levy, your business must have: A substantial amount in back taxes.

Can I deposit money into my LLC?

If your capital contribution will be in the form of cash, making the contribution is generally as easy as making out a check from your personal funds to the LLC. Capital contributions, however, also can be in the form of property or services.

Can my business pay for my cell phone?

Can a Business Pay for an Employee's Cell Phone? The IRS calls a mobile phone a working condition fringe benefit. That benefit is defined as "property and services you provide to an employee so that the employee can perform his or her job." As such, it is considered an ordinary and necessary business expense.

Is LLC income considered earned income?

LLC (taxed as a C corporation) or a shareholder in a C corporation: The profits of the business aren't considered earned income, but rather are considered a return on investment and are taxed at special corporate income tax rates.

Should I start an LLC to save on taxes?

An LLC can help you avoid double taxation unless you structure the entity as a corporation for tax purposes. Business expenses. LLC members may take tax deductions for legitimate business expenses, including the cost of forming the LLC, on their personal returns.

Can small businesses get money back on taxes?

Most Small Businesses Don't Pay Income Taxes Directly If you own a pass-through business and your estimated tax payments and tax withholding exceed the tax due on your return, you can receive a tax refund. Only C corporations pay income taxes directly, so C corporations are the only businesses that can get a refund.

How can I reduce my taxable income?

1. Contribute significant amounts to retirement savings plans.
2. Participate in employer sponsored savings accounts for child care and healthcare.
3. Pay attention to tax credits like the child tax credit and the retirement savings contributions credit.
4. Tax-loss harvest investments.

Can an LLC write off car payments?

Can my LLC deduct the cost of a car? Yes. A Section 179 deduction allows you to deduct part of or the entire cost of your LLC's vehicle.

Can my LLC reimburse me for expenses?

If your LLC agreement does not indicate such items are required, submitting an expense report for eligible expenses allows the LLC to reimburse you the costs and take the deduction on the LLC return.

Can I deduct my car payment as a business expense?

That's right — your loan interest counts as a car-related business expense, just like gas and car repairs. As with all car-related expenses, the IRS gives you two possible options for writing it off: the actual expense method and the standard mileage method.

Can the owner of an LLC pay himself through payroll?

You have several options to pay yourself from an LLC, including salary, wages, profit distributions and independent contractor pay. You can also abstain from taking any pay if you want to keep the money in the business or the business isn't generating enough revenue to pay you.

What percentage should I pay myself from my business?

An alternative method is to pay yourself based on your profits. The SBA reports that most small business owners limit their salaries to 50% of profits, Singer said.

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llcs are by far the most popular entity type among small businesses or what exactly are the benefits of a llc how does it protect your business and more importantly what are the tax benefits of choosing an llc over another entity the answers to these questions may influence the entity structure that you choose for your business and how much money you end up paying to the irs hi my name is sherman a cpa with life accounting a full service accounting firm that helps small businesses grow and manage their finances in this episode i'm going to explain all the tax benefits related to llc by the way if you're new to our channel please be sure to subscribe so you don't miss out on future videos that can help you grow your business also if you extract any value from this video please help me out by clicking the like button below lastly although i am a licensed cpa the information in this video is solely for informational purposes only it is not meant to take the place of legal and accounting advice specific to your business with that said let's talk about some llc's before we get into it let me address the most important topic on everyone's mind right now the tax loopholes associated with llc's now i'm sure you've heard of all the stories about how the rich doesn't pay any taxes or how politicians and alleged millionaires and billionaires have tax schemes to not pay any taxes to the irs and maybe you've heard that llcs is exactly what can help you evade those taxes altogether well i've got some news for you it doesn't llc's is not a tax loophole in fact llcs have nothing to do with your taxes in general llcs are legal entities that protect you from personal liability in the event of a lawsuit for example for tax purposes your llc is viewed as either a sole proprietorship or partnership typically in either case it doesn't necessarily mean that you're evading taxes however when stacked up against other entity types there are ways that you can look at an llc as a tax advantage or benefit so with that said let's go ahead and dig into what those tax benefits may be tax benefit number one pass through taxation when it comes to entity taxation there are two type of taxes that you need to be aware of pass through taxation and double taxation pass through taxation means that all the money that your business receives is subject to taxation even if you did not pay yourself a dime from your business income you will be taxed on it now double taxation on the other hand means that technically you're taxed twice first of all your business is taxed on all income and secondly when you are paid you are also taxed personally on the income that you take out of your business with that being said a major tax benefit of llcs is that it is only taxed once with pass through taxation here's an example of what i mean let's say you made 100 000 as a llc if your tax rate is 25 then you would only pay twenty five thousand dollars in taxes as an llc however on the other hand let's say you're a c corporation if you made one hundred thousand dollars as a c corporation your business will be taxed on that income first if the corporate tax rate is 20 then you would hypothetically pay 20 000 in taxes but then you have to also pay taxes on what you pay yourself from your corporation so let's say you decide to pay yourself 50 000 in w-2 wages and this puts you in a 20 tax bracket this would mean that you would have to pay an additional 10 000 in taxes due to your personal income that you've taken from your business so in total as a c corporation you would have paid thousand dollars in taxes whereas as an llc you would have only paid twenty five thousand dollars in taxes now to be fair this is a oversimplified example and there are some additional things to consider like self-employment tax for example however in general this is an example of how someone could view an llc as a tax benefit tax benefit number two s corporation election another tax benefit of llcs is that you can elect to be taxed as a s corporation s corporations are unique in that you don't have to pay self-employment taxes however you are supposed to pay yourself a reasonable salary aka w-2 wages for the work that you perform now the taxes you pay on your w2 wages will typically be about the same as what you would have paid in self-employment taxes however if your business earns over a reasonable salary for your own work then electing to file as an s-corporation may be worth considering again this is simplified information but if you want to weigh the pros and cons of this you can contact us to create a custom tax plan for you all right tax benefit number three tax write-offs the next benefit of a llc are tax write-offs now this is a major benefit for self-employed individuals who may not be writing off everything related to their business like your home office expenses business travel and other business related expenses a llc is typically considered separate from you as an individual which means that your business finances should be separate from your individual finances making it much easier for you to keep track of your business expenses in order to deduct it from your tax return for example if you have a business bank account you can sync your financial information with a bookkeeping platform like quickbooks for example then you can categorize all of your business transactions so you can easily start deducting eligible expenses from your tax return tax benefit number four pass through tax deductions now i know what you're thinking i'm about to completely contradict myself but i'll explain why in just a second generally there is no difference in tax write-offs for a llc versus another entity type like a corporation however llcs are eligible for the 20 pass-through tax deduction that was passed through the jobs act all passed through entity types sole proprietors partnerships llc's and so on can deduct up to 20 percent of their taxable income from their taxes so for example if you were preparing to file a tax return that report one hundred thousand dollars in income then this deduction would reduce your taxable income to eighty thousand dollars if applicable the twenty thousand dollars in savings would save you thousands of dollars on your business tax return now to be fair there are a few rules and regulations that may disqualify you from receiving this tax deduction however if you are eligible for it it could turn out into some big tax savings tax benefit number five llcs are easy to set up one of my favorite things about llcs is that it is fairly easy to set up which ultimately makes filing your taxes much easier and less stressful than other entity types you don't have to worry about divvying up stuff like common stock and preferred stock and there is typically less record keeping required for setting up your llc in the first place ultimately there is less compliance required for setting up llc's so if you don't have a lot of things going on in your business starting off with an llc might be a great option for you okay so those are the major tax benefits of an llc now let's recap today's episode today we exp

Thanks for your comment Jenelle Partch, have a nice day.
- Nellie Lothspeich, Staff Member

welcome back to taxes made simple today we're going to go over llc's we're discussing today top 5 write-offs for llcs now there could be a number of reasons why you decided to start an llc maybe you're a new business owner maybe you just started earning 1099 income and someone told you you need some type of entity structure maybe you're a truck driver maybe you even want to invest in a rental property and you want to get an llc for asset protection well if that's you today today we're just going to go over the top five tax strategies for llcs to put you in a better position number one start up an organizational cost as a new business owner chances are you are going to have startup costs and organizational costs startup costs and organizational costs could be in the form of marketing advertising maybe you've already established your website or maybe you spent some money on getting some training and some coaching before you decided to establish your business anytime that you have cost before you're considered operational they're considered startup costs and operation costs and you as a business owner are able to take five thousand dollars in your first year as startup cost or organizational cost let's just say that you spend more than five thousand dollars on getting your business set up any expense that exceeds five thousand dollars is amortized over the course of 180 months so as a business owner you still get to benefit from some of those costs that you had that exceeded 5 000 be very mindful of this when you file your tax returns that you make sure that you include all of your startup costs and all of your organizational costs for your small base business number two the home office deduction in the year of 2020 we were faced with a pandemic if you're watching this video right now chances are you probably lived through it so let's talk a little bit more about the tax deductions you can take as a small based business owner one of the biggest tax write-offs is the home office deduction most small based business owners are working from their home so how do we go about taking this home office deduction well it's simple if you have a designated space in your home or a designated room in your home that you're doing business in that is strictly for business you can take that space and leverage that space as a home office deduction here's how it works you start off by getting the square footage of your home office space or your home office once you have that square footage you're going to divide your home office space or your home office buy the entire square footage of your entire home when you do this calculation you are going to receive a percentage this percentage will be your home office percentage based on the utilities that you have in your home utilities could include your water cable electricity and gas fill these all go into your home office expenses anytime that you are making repairs or maintenance or doing improvements to your home office these can also go down as a part of your home office expense this is another way for business owners to benefit from some of the changes that they plan on making in their home as a part of their home office number three the vehicle deduction as a business owner you could travel to meet with your clients and chances are your vehicle is going to be used for your business how do we go about making sure that that vehicle that's used for your business is leveraged the right way there are two different ways in which you can determine to take a vehicle deduction inside of your llc one way is by taking the mileage when you are a business owner you have the ability in the year of 2020 to take 58 cents per every single mile you drive for many uber lyft and truck drivers mileage is extremely important because they are tracking their mileage on various different apps called mile iq or even quickbooks has a way for you to track your mileage on your cell phone being able to track every business mile you take is important so that you're getting all of your deductions just think about it 58 cents for every single mile you drive that can add up extremely quickly the second way for a business owner to take a vehicle deduction is by depreciating their vehicle inside of their business a vehicle depreciates over the course of five years if you purchase a vehicle that's 50 000 this would result in a ten thousand dollar write-off each year if you were to take a straight line depreciation there are different methods in how you can depreciate a car you can choose to do a double declining method that allows for you to accelerate a portion of your depreciation so you are getting a bigger write-off with your vehicle as opposed to waiting the entire five years to take all of the 50 000 there's also the code section 179 that allows for you to take a business deduction for a vehicle that weighs over 6 000 pounds all in one year so if you happen to purchase a vehicle that weighs over 6 000 pounds you can ride off the entire vehicle in your business through your llc in the same year reducing your taxes immediately let's discuss marketing and advertising no business runs without getting customers through the door if you're in business whether you're selling services or you're providing products you're gonna need to market those services for those products and you're gonna need to advertise them marketing and advertising are two of the biggest expenses that most business owners have because it's how you're able to create consistent income within your organization when you are having marketing and advertising going out whether it's flyers website seo this is a business expense that you get to take every single year through your llc when you are spending money on marketing and advertising these are immediate expenses these expenses do not have to be amortized over time or depreciated over time so rather than having to take marketing and advertising as an expense like a vehicle over five years you are able to write off your marketing and your advertising in the exact same year that you spend the money on your marketing and advertising as long as they're not considered startup organizational costs you will have no problem expensing a hundred percent of your marketing and your advertising through your llc and number five turning your llc into an s corporation when your business grows to the point when the benefits outweigh the cost to switch your llc to an escort you will eliminate a 15.3 of self-employment tax that many llcs and sole proprietors pay into not to mention you will be able to take a deduction when you decide to place yourself on payroll because an s corporation requires that the business owner pays themselves out of their business it's one of the many benefits to being a business owner being able to control the income you pay yourself and control the amount of income your tax gap one of the many benefits to being in an llc is that you can choose to tax yourself as an llc you can choose to tax yourself as an s corporation or you can choose to tax yourself as a c corporation however one of the benefits to taxing yoursel

Thanks Donny your participation is very much appreciated
- Nellie Lothspeich

About the author

Nellie Lothspeich

I've studied abrahamic religions at The Catholic University of America in Washington and I am an expert in cognitive psychology. I usually feel blah. My previous job was social psychologist I held this position for 20 years, I love talking about surfing and quiz. Huge fan of Lauren Daigle I practice rugby union and collect minerals.