What is the importance of an LLC [Expert Approved]

Last updated : Sept 5, 2022
Written by : Melvin Orosz
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What is the importance of an LLC

What is the benefits of having an LLC?

A Limited liability company (LLC) is a business structure that offers limited liability protection and pass-through taxation. As with corporations, the LLC legally exists as a separate entity from its owners. Therefore, owners cannot typically be held personally responsible for the business debts and liabilities.

What is the downside to an LLC?

Profits subject to social security and medicare taxes. In some circumstances, owners of an LLC may end up paying more taxes than owners of a corporation. Salaries and profits of an LLC are subject to self-employment taxes, currently equal to a combined 15.3%.

What are the three main advantages of the LLC?

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

How can an LLC avoid 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.

How does an LLC protect you?

Personal asset protection. An LLC provides its owner or owners with limited liability. This means that means you—the LLC owner—are generally not personally liable for any debts incurred by your LLC business or most business-related lawsuits.

At what point do I need an LLC?

If you have business partners or employees, an LLC protects you from personal liability for your co-owners' or employees' actions. An LLC gives you a structure for operating your business, including making decisions, dividing profits and losses, and dealing with new or departing owners. An LLC offers taxation options.

How much does an LLC cost?

You can file the LLC filing documents online, by mail, or in-person when visiting the local SOS office. The filing costs usually vary from $50 to $150 which is a single-time fee. If you plan to form your company in another state, then you might have to provide additional documentation and pay a higher formation fee.

How do taxes work for LLC?

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 can you do with LLC?

An LLC is most often used to operate a business (you can have multiple businesses in one LLC), but LLCs can also be used to take title to assets. For example, an LLC can be created to own real estate (when should I form an LLC for real estate?), vehicles, boats, and aircraft.

Is an LLC a good idea?

How an LLC can benefit a small business. Probably the most obvious advantage to forming an LLC is protecting your personal assets by limiting the liability to the resources of the business itself. In most cases, the LLC will protect your personal assets from claims against the business, including lawsuits.

What does LLC mean for dummies?

An LLC, or limited liability company, is a U.S. business structure that combines the simplicity, flexibility and tax advantages of a partnership with the personal liability protection of a corporation. Owners of LLCs are called members.

What does LLC in a business name mean?

A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, you should check with your state if you are interested in starting a Limited Liability Company. Owners of an LLC are called members.

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 from your taxes. If your startup expenses exceed $50,000, the total deduction will be reduced by however much your expenses exceed $50,000.

Is there a tax benefit to having an LLC?

LLCs are eligible for the Qualified Business Income deduction, or QBI. This deduction was established in 2017 to help reduce the tax rate or obligation for small business owners. With the QBI deduction, up to 20% of the business income can be claimed as a deduction. It is set to sunset, or not be available, in 2025.

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.

Can my LLC affect my personal credit?

Situations Affecting Personal Credit There are a few situations when a bankruptcy filed by a corporation, limited partnership, or LLC might affect your personal credit report. If an LLC has debts in its name, only the credit of the LLC is affected. The exception is if a member of the LLC guarantees the loan.

Will an LLC protect me from the IRS?

Limited Liability Company (LLC) For state purposes, an LLC is a business separate from its owner in which the owner is protected from the LLC's acts and debts, such as bankruptcy and lawsuits. For federal tax purposes, an LLC is disregarded as separate from its owner, therefore is liable for taxes.

What does an LLC not protect you against?

Thus, forming an LLC will not protect you against personal liability for your own negligence, malpractice, or other personal wrongdoing that you commit related to your business.

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.

Should I start an LLC before making money?

Is an LLC Necessary To Start a Business? You don't need to start an LLC when establishing your business. However, if you want to differentiate between your assets and the company, an LLC is the right way to go. You should start an LLC if you want to start a business and protect your personal assets.

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What is the importance of an LLC

Comment by Wesley Stich

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 Wesley Stich, have a nice day.
- Melvin Orosz, Staff Member

Comment by stallonei

what does an LLC and now I'll see your limited liability company is popular type of business structure due to its flexibility and simplicity if you're a small business owner or entrepreneur starting an LLC is one of the best ways to establish credibility and protect your assets watch this video to get a quick overview of the main features of an LLC how an LLC protects your personal assets how LLC's are taxed the importance of an operating agreement and using a professional LLC formation service at the end we'll share some free resources to help you start your own LLC and follow your business dreams millions of new businesses are formed in America every year they are legally structured as one of several choices sole proprietorships general partnerships corporations or limited liability companies the structure chosen for a business will determine who owns the business how taxes are paid and who's liable if a lawsuit or debt arises each state has specific requirements on forming and maintaining a business structure for small business owners and entrepreneurs one of the most beneficial business structures to choose from is the LLC the limited liability company an LLC has several features that make it desirable the first is LLC's acts as a legal entity separate from its owners creating what is known as a corporate veil this protection keeps the owners personal assets secure in the event of a lawsuit or unpaid business debt the second is LLC's that pass through taxation when a corporation makes a profit net profit is taxed distributed to the owners and then taxed again as personal income and LLC's profits are not taxed thus the owners only pay tax on the revenue wants and the third is that business accounting and compliance can be complicated LLC's relative to other corporate structures streamline the formation and record-keeping burden making them easy even for single owner businesses to maintain these are the main reasons you might want to start an LLC for your business there are many other reasons as well for instance privacy which we will address later and the fact that LLC owners do not have to be US citizens or permanent residents if you want flexibility and simplicity LLC's are a great option for starting a new business Oh an LLC protects your personal assets if you operate your business as a sole proprietor a partnership and for example someone gets hurt on your premises or one of your products injures someone you can be sued as an individual and lose your personal assets your home your car etc an LLC protects the business owner by acting as a separate legal entity responsible for its own debts and lawsuits the distinction between owners and business structure is known as the corporate veil it's not enough to simply establish an LLC you'll need to preserve the corporate veil by signing documents as a representative of the company and not as an individual keeping personal and business finances separate following an operating agreement avoiding fraudulent activities and keeping up to date with annual filings you can learn more about the corporate veil at our website and research common forms of business insurance you can never completely prevent problems but to prepare for the worst and protect yourself in your business forming an LLC is a good first step while LLC's are taxed taxes are one of the most complicated parts of owning a business and the penalties are stiff if you fail to comply with the law LLC's are quite flexible on how you choose to be taxed which can be used to your benefit well the details are too much to cover in this video the most important things to know about LLC taxes are if you're a single-member LLC the IRS ignores the business structure in taxes you like at wooden individual the Alice's income is reported on your personal tax return at the end of the year if you have a multi-member LLC the LLC does not pay any income taxes and all profits are passed through to the members who then pay the IRS on their individual tax return well these are the default tax elections you can also opt for your LLC to be taxed as a corporation a C Corp or an S Corp regardless of your tax designation you'll need to file yearly with the IRS check out our federal tax guide or consult with an accountant for specific details on what forms you'll need to file as for state taxes because LLC's are typically pass-through entities individual members pay state taxes not the LLC itself however there are certain types of taxes LLC's may have to pay common forms of state tax you may have to pay include franchise tax sales tax withholding tax and unemployment insurance tax again you'll want to consult an accountant for details the importance of an operating agreement when forming an LLC the most essential document is the operating agreement an operating agreement is an internal document meaning it doesn't need to be filed with the state however it's a critical component of your LLC that outlines the essential ownership and member details of the organization the operating agreement is the foundation of your LLC a living document that gives your business credibility and helps maintain your corporate veil it will outline the management and voting rules capital contributions and distributions membership and dissolution practices and all the basic stipulations on how the companies operated we provide operating agreement templates at our site we also rate and recommend professional LLC services that can help you create a custom operating agreement whose professional corporate agents are secondary companies for hire that can help you form and maintain your LLC which we'll address next using a professional LLC formation service LLC's are formed at the state level and typically cost between 50 and 150 dollars for basic formation to officially form an LLC you'll file paperwork with your state's Secretary of State and once that's been processed you'll register for an EIN or employer identification number with the IRS your ein is like a social security number for your company and is necessary for taxes and banking you can do all this on your own to save money or you can hire a professional service for an additional fifty to one hundred and fifty dollars various providers have different packages but one service to consider is hiring a registered agent when you file your formation documents with the state they'll ask for a registered agent which is like a point of contact to receive mail and official papers an LLC's registered agent can be a member of the LLC or it can be a hired service a hired registered agents of great convenience they'll help you with getting your reports filed on time will keep your business mail separate and will be available at all regular business hours to accept official mail and legal papers on your LLC's behalf final an important additional benefit of using a services privacy a professional service will provide a level of privacy by withholding your personal name and home address from the LLC's contact information there are many reasons you might not want your personal information easily accessible and associated with your busines

Thanks stallonei your participation is very much appreciated
- Melvin Orosz

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