Tax Advantages Of A Limited Liability Company

Tax Advantages Of A Limited Liability Company



Tax Advantages Of a​ Limited Liability Company
There are several advantages to​ establishing a​ limited liability company and many of​ these compensations revolve around the​ tax advantages .​
a​ limited liability company if​ often sought as​ a​ third alternative to​ forming a​ corporation or​ a​ partnership .​
Many corporations are formed because they offer attractive limits on​ the​ personal liability that the​ business may suffer due to​ debts or​ liabilities .​
Partnerships don’t offer the​ same kind of​ protection,​ but do provide better tax advantages.
A limited liability company works to​ combine both these features,​ providing protection against personal liability while also establishing solid tax advantages .​
In addition to​ these selling points,​ a​ limited liability company is​ also often preferable to​ either incorporation or​ the​ formation of​ a​ partnership because they provide more flexibility than corporations and also because the​ legalities involved in​ running tend to​ be less formal .​
It is​ this lack of​ formality that leads to​ the​ tax advantages inherent in​ a​ limited liability company.
When it​ comes to​ federal taxation laws,​ a​ limited liability company has much more flexibility for choosing particular tax advantages .​
The default choice when there is​ more than one owner is​ for the​ LLC to​ be treated like a​ partnership and file the​ same form,​ Form 1065 .​
But a​ multiple-owner LLC can also choose to​ be treated as​ either a​ C corporation or​ an​ S corporation .​
a​ single-owner limited liability company can choose to​ be treated for tax purposes as​ either a​ sole proprietorship—which is​ the​ default choice made by the​ IRS—or as​ either a​ C corporation or​ an​ S corporation .​
The primary tax advantages in​ organizing a​ business entity as​ a​ limited liability company is​ the​ avoidance of​ double taxation .​
In traditional corporate structure,​ a​ company’s income is​ initially taxed and after the​ profits are divided in​ the​ form of​ dividends,​ they are subject to​ taxes again .​
But a​ limited liability company’s income bypasses the​ initial taxation and instead each member of​ the​ LLC is​ taxed based on​ individual allocations .​
One of​ the​ other tax advantages of​ a​ limited liability company is​ that dividends are not subject to​ taxation.
Of course,​ along with tax advantages come disadvantages .​
After all,​ if​ limited liability companies were perfect,​ there wouldn’t be any other kind of​ companies .​
Some states have chosen to​ impose franchise taxes on​ LLCs .​
Of they may require certain annual fees in​ order to​ allow you​ to​ operate within that state .​
The legal ramifications of​ choosing to​ become a​ C corporation or​ S corporation or​ simply a​ sole proprietorship are dense and complex and certainly shouldn’t be made after reading an​ article on​ the​ internet,​ even articles that provide much more information that this article .​
Tax advantages of​ limited liability companies are certainly a​ selling point—along with the​ protection they offer from liability—but before making any decision; it​ is​ advisable to​ consult an​ experienced attorney .​
One thing to​ keep in​ mind about a​ limited liability company beyond the​ tax advantages is​ that they are a​ fairly recent innovation and therefore legal precedent is​ in​ the​ process of​ being set right now .​
In fact,​ should you​ face legal action,​ your case may be the​ one that sets the​ precedent.




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