LLCs are an exciting and relatively new form of business organization in the United States. They are flexible hybrid business entities that combine the protections of a corporation with the features of a partnership/sole proprietorship. Here is a rundown of some of those benefits:
Tax flexibility
LCCs provide a great level of flexibility for owners of a company. Owners can choose to be taxed as a LLC, partnership, sole proprietorship, s corp or c corp. This means that owners can legitimately minimize their tax bill by selecting the least costly way of paying taxes.
Assigning tax liability
If a LLC decides to be taxed as a sole proprietorship than it has the ability to assign tax liability to the owner(s) in the lowest personal income tax bracket. A minority owner can be responsible for paying the vast majority of a LLC’s taxes. This can be decided by agreement among the owners.
Pass through taxation
Owners of LLCs can choose to be taxed as if the income of their business is personal income. This is the option of being taxed as a sole proprietorship. This is a particularly good option for business owners who are not in a high tax bracket.
In many cases personal income tax rates are lower than corporate income tax rates. Owners who elect to be taxed as sole proprietorships or partnerships can file personal and business tax returns at the same time.
Less paperwork
LLCs generally require less paperwork to start up and maintain than traditional corporations. With LCCs, business decisions can be made by authorized persons not just directors and owners of a company.
LLCs also make it easier to transfer ownership of the company. Changes in ownership can be done with a member agreement and resolution. There is no need to go through the process of repurchasing shares from departing stockholders in order to sell those shares to new owners.
Tax write-offs
One of the benefits of an LLC over a sole proprietorship is the ability to write off business expenses. Sole proprietorships are limited in how much they can write-off annually. LLCs can write business operation expenses, depreciation of assets, salaries and certain health care costs.
