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.
About the author:
Matt Garrett
www.Accept-Cre
dit-Cards-Online.co.uk www.how-to-incorporate.o
rg
