Tax Advantage for Limited Liability Company
For income tax purposes, the Limited Liability Company is treated just like a partnership. The owners need to fill an IRS Form 1065. Under some circumstances, the members of the Limited Liability Company are taxed like a company, that is, taxation of the entity’s income is carried out before distributing profits or dividends and then of the income that is received by the members. However, for most normal cases, starting a Limited Liability Company can help in saving more income from taxation. Read on to know more:
Exemption from Double Taxation: Self employed individuals are required to incur both employer federal taxes and employee federal taxes. This means that these individuals are double taxed. However, for a Limited Liability Company, the owner can choose to operate as a partnership, sole proprietor, or like a company.
The profits or losses of a Limited Liability Company can be listed on the members' personal income tax returns that can result in large tax savings. Moreover, the members can choose how the profits must be divided. This is not possible in a partnership where profits are divided equally among all partners. This permits flexibility in profit division for taxation purposes.
There is no additional tax that is levied on the Limited Liability Company as an entity. This is because all members file their taxes individually and there is no separate tax form to be filled for a corporation.
The LLC members can choose to have their business taxed just like a company. This can prove to be beneficial when members have certain assets that they want to protect or keep private. The corporation can also write of the complete amount of the health care premiums that are paid to employees and owners.
A Limited Liability Company can also file as an S Corporation, which could be advantageous when the member is actively involved in the business and also withdraws a salary and earns majority of the profits. By filing as an S Corporation, the member can distribute profits to the company shareholders on a tax free basis for Medicare taxes and Social Security.