I’m getting ready to start my own business and I keep hearing I should set it up as an LLC. Does the LLC have many benefits for a small business?
ANSWER
Yes, a primary benefit is that a limited liability company (LLC) protects its owners from personal responsibility for its debts or liabilities if they treat it like a true corporation. If the company goes bankrupt, creditors cannot therefore go after the owners’ personal assets, just that of the business.
To ensure limited liability status, make sure you have a separate set of books from your personal accounts and keep corporate records.
LLCs also have ultimate flexibility for federal tax treatment.
· If you own it 100%, it can be treated as a sole proprietorship.
o Income is taxed to you directly on your personal tax return.
o Income is self-employment income.
· If you have a partner, it can be treated as a partnership.
o Your share of Income is taxed to you directly.
o Your share of Income is self-employment income.
· You can elect Subchapter S status and treat it as an S Corporation
o Earnings are not self-employment income – no self-employment tax.
o Reasonable compensation is required.
· You can file a Form 8832 and elect C Corporation status.
o Earnings are not taxed to you directly,
o And are subject to a flat 21% tax rate.
o A fiscal year end is allowed
