Did you create an LLC for tax benefits?

As someone who's registered an LLC and who is struggling with taxes i'll give you a few pointers before bed. First off you get no tax benefit with LLC, your LLC isn't taxed, you as the individual are, you do get a EIN(social security num for your business) but you're still taxed as an individual. s Corps and all that are taxed as a business but I highly recommend you stay away from those, their only benefit is if you got a lot of people in the mix and if you know how to play the writeoff game. S Corp will also cost you far more in taxes. Anyway the benefits of registering an LLC vs just doing a DBA(doing business as) is you do get some protection from lawsuits, the idea being if your company gets sued they can only take company assets if you lose and not personal assets, this doesn't always work, google "piercing the corporate veil"(basically don't mix your business money with regular checking accounts. Oh btw you definitely need to open a business account for LLC can't use regular checking account. As far as taxes go, you have state taxes and you have federal, im struggling on this but basically you have estimated taxes 4 times a year for federal and usual state, figure those out are a real pain. You also have self employment tax which is social security+medicare, that's the 15% or whatever you found, and I believe that's yearly. Basically for taxes you should not be paying over 30% total, unless you're making a ton of money and move up in tax brackets. If you have anyone do work for your company make sure to hire them as a "independent contractor" and not an employee, that way you don't have to pay insurance and bunch other crap.I recommend you get a book on this stuff like I plan on from amazon, can't afford a dumb account which would simply everything much more. Also as far as registering your LLC(usually costs about $100) don't use a third party service the form is literally like 5 lines,just have to mail it in yourself. As far as registered agent(the official location that gets your business mail) you can set yourself as that. As far as write offs go, i'm not the person to ask, i'm still trying to figure out the tax stuff myself, the IRS has forms that try and explain it, but is like another language to me. Check with your state about sales tax, mine doesn't charge for digital goods, some do. How sales tax works is if anyone in your state buys stuff from you, you have to charge them sales tax and send to the state. usually only applys with tangible goods, but again it depends.

Go consult a professional. Find the local SBA or Score office in your area and let them guide you in the right direction: Who you need to talk to, your options, etc. Those folks will be more than glad to help you.

This is not the place to ask that type of question or seek that type of information if you are really serious about being a business owner.

You need to sit down with a CPA.. plain and simple.. If you want information you can rely on, make an appointment. A lot of times you can get a free consult from a CPA looking to add you to his book of business.

Forming an LLC is very easy in my state, it can almost all be done online. However, I am very thankful for the $100 I paid to sit down with a CPA. She was able to explain things to me that I would not have otherwise known. I was incorporated that same day! She was responsive to questions about everything she did on my behalf.

For instance, my state charges a sales tax on DIGITAL goods, only when sold to other residents in the state. So, my payment processor needs to be capable of identifying those folks and adding sales tax. You better believe that the state sends me a form asking for my in-state sales every month!

One of the biggest reason I incorporated is to have a vehicle to separate my personal and business expenses, but also to protect myself. If you do not form a company, than if you are sued, your house, your car and your other assets are at risk.

Incorporate. With the guidance of a CPA!

Tyler

The "talk to a professional" advice is a bit over-rated here, for STARTERS. You need to have a GENERAL ideal as to what's going on BEFORE you talk to them.

In my experience, and those I have talked to...

CPAs are big on LLCs and some say a DBA is all you need
Lawyers want to do a Corp.

Remember, I said in MY experience.

Garrie

Start keeping your eye out on who's who and what's what. Alot of major companies whom you'd assume are Inc's are really LLCs. The bottom line is, if your business situation is simple, i.e. just starting out - LLC just makes sense. If it's the "simple" form, you get the protection and the benefits of the LLC, and usually all you have to do is file a form on your own tax return.

"S" Corps and LLC's are both pass through entities.

S Corp Tax Paperwork is more difficult to file.

LLC's provide no tax benefit in the context in which you are thinking because you still pay Payroll... FICA and SS on all your earnings. The benefit comes as stated above by knowing how to take advantage of what is available to corporations vs what is available to individuals.

The only way you will save again in basic context is to form an S Corp. And the only thing you will save on is Payroll Tax.

The IRS expects you to pay yourself something... even if you are losing money. Crazy, but true.

So on your example of earning 100K you could pay yourself a salary of 20K. This assumes that the 100K is PROFIT above all expenses.

Here is what would happen.

You would pay Federal Income Tax on the full 100K
You would pay Payroll Tax (15.3%) on the 20K shown as salary

You would file 1120S and supporting forms for your Corporation
You file your 1040

You don't actually pay taxes on the Corporation... but the income "flows through" to your 1040

You'll need to keep your paperwork up to date. There are additional taxes and fees depending on your State.

You can file and set up business in Any state you want, but if your business is in one state and you are in another you will likely have to file paperwork with your home state as well.

It's all a mess and hassle.

What you would save however is the 15.3% of the 80K difference. And that's a little over 12K so it's worth doing.

But it's in your best interest to hire a Book Keeping Service to do the paperwork for you. That may cost you as little as $500 a year or as much as $5K. Depends on how complex.

Until you are actually earning in excess of 20K it makes little point. For most people it's not worth the hassle until you earn more than 40K.

Nevada is less friendly than they used to be. Right now Wyoming is probably the better choice for most people.

There is a lot of crap information here based on opinion and not fact... because most of these people have never done it. I've had a S Corp for years. There are other reasons to form an LLC that are beneficial vs just a sole proprietorship.

Ultimately you will want to find an accountant or book keeping service... it's worth the money. The paperwork is a pain in the Bu))

Should I laugh or cry?

Ever heard of dividend income?

I agree with kindsvater...an LLC definitely does have a tax benefit.

Instead of getting paid, only to be taxed first then spend..with an LLC

you can spend first, then get taxed on the remaining balance.....so for example,


if you get paid $100 bucks....most people without corps get taxed on that amount...then spend the rest.



$100 (revenue)

$30 (taxes)


$70 spendable money....


But with an LLC


$100 (income)

$85 (spending)

$15 (taxable income)

I know these numbers are rough and the estimates I used are far from precise, but hopefully, you get my drift....

As someone who has setup numerous entities: corps, LLCs, partnerships, etc., as well as running a sole proprietorship, my philosophy is simple:

1. Who says you can only have one business entity?

2. After you look at tax advantages and disadvantages for different entities, select which one(s) you want to use for their advantages.

To answer an original question from the OP, a corp (C or S), LLC, partnership, etc., will offer tax savings not available to a sole proprietorship because the tax code offers deductions only available to those entities.

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