Business owners often hear about the tax benefits of incorporation, but rarely do they take the time to explore the nuances of these benefits. For those entrepreneurs considering filing an LLC, this insight from About.com on the tax advantages may help them decide.
First, the source explains that limited liability companies can be operated by one or several owners. There are different tax benefits that come with both forms of LLCs.
Single member LLCs are taxed like sole proprietorships. About.com explains these LLCs are a “disregarded” entity. A business’ net income is calculated on the individual’s federal income taxes, and profit or loss is added to this personal income to determine the total amount of tax payable.
When an LLC is run by multiple members, the entity is taxed like a partnership. Information is filed with the IRS by the partnerships and each partner’s share of the profit or loss is recorded on individual tax forms.
Either way, members benefit from self-employment tax benefits. Plus, no matter the operating method of an LLC, members can also elect to have the LLC taxed as a corporation. This is a tax structure that offers advantages on the state and federal levels.
In addition to providing tax benefits to entrepreneurs, filing an LLC may benefit the nation by bringing business owners advantages with new hires. According to a report from Business Insider, LLCs benefits are maximized when founders make new hires.
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