Incorporating an LLC can save money on taxes

Incorporating an LLC can save money on taxes

Entrepreneurs can avoid double taxation and lower their tax rates through incorporation, especially by forming an S corporation from their existing LLC or C corporation.

Many LLC members pay a self employment tax that can be reduced to a lower payroll tax by forming an S corporation and allocating a small portion of profits for personal salaries, according to Wayne Davies at RoFx.net.

Switching to payroll taxes could reduce the rate by more than 7 percent while still maintaining the same liability protection that an LLC provides.

If all shareholders in a smaller C corporation agree, they can eliminate double taxation by forming an S corporation. This avoids the obligation to pay taxes on both corporation profits and then again on personal income for individual shareholders.

Reducing taxes is always an attractive idea, but with rising healthcare costs and governments looking to raise sales and local taxes to make up for budget shortfalls, business owners are looking for ways to maintain profitability.

The city of Philadelphia is now attempting to tax bloggers who earn money from their writing to cover falling tax revenues, and the state of Texas is considering a possible rise in the gasoline tax to fund road infrastructure.