If you own a limited liability company (LLC), it may be a good idea to re-visit the current structure with your accountant to ensure optimal performance regarding business taxes. If, however, you do not own an LLC, it’s well worth your time to see if an LLC is right for you. Whether you are currently self-employed (such as a realtor or a consultant), have a side business (such as online sales or a local service offering) or even if you have not yet established such a business and don’t know where to begin, you may be surprised by the latitude of options available to you. Based on your specific scenario, your accountant may have thoughts regarding how an LLC business tax structure may have relevance in your line of work.
Merriam-Webster online dictionary (https://www.merriam-webster.com) defines “limited company” or “limited liability company” as “a company in which the liability of each shareholder is limited to the par value of his stock or to an amount fixed by a guarantee.” As a business owner, this limited exposure is appealing as a form of protection for risk you take in conducting business activities. On top of this, the business tax benefits available to you are quite valuable. For example, you can gain the ability to have higher limits on insurance and retirement contributions, which offers immense future savings. You can also potentially be taxed at a lower rate, based on your type of LLC and other parameters, presenting a more immediate which savings.
It’s important to consider, if you have an LLC currently, or if you’re creating one anew, that LLCs are regulated by each state, individually, so there may be variations worth investigating regarding which state your LLC is created in from a business tax and liability perspective, while taking into account how laws of the governing state apply to your specific business. If you reside in a state other than the state in which your LLC is (or will be) formed, it will be worthwhile to learn the process and fees to register your business in the state you occupy, as well as what taxes will be expected, as a means to weigh costs and benefits of each option. It will also be important to discuss with your accountant how many members will share ownership in your LLC, as business taxes will vary if your LLC is treated as a sole proprietorship, partnership, or corporation, among some other fine-tuning details regarding how the IRS will treat your entity, such as making an S-corporation tax election which can minimize your taxes owed when compared to the traditional self-employment tax structure. The “S” election essentially changes the way the IRS treats the income tax calculation, viewing it as passive (versus earned) income. It will be important to discuss such distinctions with your accountant as variations in setup will affect the LLC business taxes directly and indirectly, such as for deductions of insurance (including health, auto, medical and disability), and healthcare reimbursement arrangements (HRAs).
In additional to savings available for LLC business taxes, LLCs can also use a multitude of resources available to businesses. Many business owners are not aware of, or have forgotten to take advantage of organizations that offer free services to support your needs. For example, SCORE (https://www.score.org) and SBA (https://www.sba.gov), offer a wide array of tools, services, advice, education and fund sources for women, minorities and business owners, in general. Additionally, access to eligibility for state and federal contracts is another untapped source of potential income for LLCs. SCORE, in particular, offers classes and workshops in concert with entities such as these to help your business flourish. It may be worthwhile to see if they are offered in your area.
You may be surprised by the flexibility and extent of savings you can experience through your LLC, including the ability to deduct qualified start-up expenses incurred during the first year of operation, various forms of travel and transportation, and even the ability to pay your minor children for work performed, without paying payroll taxes. It’s also worth noting that the recent “Tax Cuts and Jobs Act” results in a new deduction for those who earn income through a pass-through business, again, generally lowering LLC taxes. It’s a great time to delve into these options and consult with your accountant to see if you can benefit from LLC business taxes and unique benefits of these structures.
