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Forming LLC: benefits for taxes

Asked by: Arthur Kimble - 19 October, 2011
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/default.png-f1597c1da25f30f8c1a941405e8391c8 What tax benefits are given by incorporating an LLC?
Answered by: Ray Albert - 21 October, 2011
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/194.jpg-630c771619e92bede7e6f696b56767b9 Arthur,

The most important benefit of forming an LLC is actually not tax related, but limited liability related. You protect yourself and your assets by separating yourself from your business using an LLC. See this answer to understand those benefits of forming an LLC.

As far as taxes go if you form a single member LLC and leave it to be taxed by default as a "disregarded entity" the tax situation will be identical to just having the business as a sole proprietorship. You can deduct the same business related expenses etc. Same is true if your LLC is a multiple-member LLC, in which case its taxed as partnership.

The tax related advantage of LLC has to do with the fact that this entity is flexible as far as choosing how to be taxed. You can elect the LLC to be taxed as S-Corporation or even C-Corporation, if your personal tax situation makes such election more beneficial at a given period or year. The taxation of S-Corporation is somewhat different than that of Partnership or Sole Proprietorship, so with a good advice from an experienced CPA you can plan your taxes better but choosing how your LLC is elected.

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