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  • Why choose an LLC?

    Off all of the benefits, taxation and liability are the two most important factors. Within this site you will find lots of information regarding the pros and cons of forming an LLC. Our goal here is to provide you with accurate information that doesn’t try to push into one direction over another. Some individuals and or their businesses needs will be better served with an LLC, some will not. It’s your job to do your homework to find out exactly where you should be.

  • Is An LLC Right For Me?

    Luckily for you we didn’t like homework too much either. So the information contained within our site breaks things down in a very straight forward and easy to understand terms. One other benefit of working with LLC.net (should you choose to form an LLC) is that we provide you with the most financially efficient methods to file. Starting a successful business is tough work and its important that you have honest advice from a reputable source right from the start.

  • Why Should I Use LLC.net?

    Not only with LLC.NET can you form an LLC, S Corporation, C Corporation, or Incorporate for some of the least expensive rates anywhere but you also get inclusion into the LLC.NET Verified Business Program. The main benefit to the LLC.NET verified business program is that you will be given a Verified Business Badge to include on the home page of your company website.

     

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The Popularity of LLCs

A Limited Liability Company or LLC is essentially a new type of business organization that has become immensely popular over the past ten years. There are a myriad of advantages associated with creating a LLC, the most significant of these being the fact that members have pass-through taxes, similar to those associated with a partnership, but are afforded limited liability.

By forming a limited liability company rather than creating a corporation, an individual can reap corporation type benefits while still avoiding most of the negative aspects that are associated with corporations. Those who choose to form a corporation are subjected to endless paperwork, double taxation and a vast array of other complicated issues. However, these undesirable aspects can be entirely avoided by those who opt instead, to form a LLC.

How A Limited Liability Company Works

A LLC allows multiple members or owners to be involved in the company, one of whom will be the person responsible for its management. The company’s manager enjoys the added benefit of the limited liability from which this type of business takes its name. However, if the limited liability company has a single owner, he or she will be taxed as the sole proprietor.

Features and Benefits

The profits and losses of the limited liability company pass straight through to the owner’s 1040 tax form. LLCs must then file a form 1065 which lists all of the members’ taxable income with regard to net profits, however, the limited liability company itself is not required to file a tax return.

These guidelines are quite different from the rules and regulations that apply to a corporation. A corporation must be taxed, and subsequently must file taxes. After these steps are completed, the owners’ distributions are taxed. What this boils down to is that essentially, the government takes two portions out of the corporation’s profits, as opposed to the one portion they would receive if the business were a limited liability company. This is another obvious benefit that has made LLCs so popular in recent years.

The net profit of a limited liability company is not regarded as earned income to the members of the company, which means it is not subject to self-employment tax. However, it is vital that one understand that this does not apply to the individual responsible for managing the company. His or her share of the net profit is regarded as earned income, which means self-employment tax laws apply to this income.

Compensation

The members of LLCs are compensated through guaranteed payments, or alternatively, distribution of profit. Members that are paid through distribution of profit can write checks to themselves whenever necessary, provided the funds are available, however, they are not permitted to pay salaries to themselves.

The other option–guaranteed payment–is considered earned income to the company’s members, which in turn qualify them for favorable tax benefits. However, their share of the company’s net profit is not regarded as earned income since the members are not active owners.

As one can see, there are numerous, attractive characteristics associated with LLCs, and it is not surprising that more and more business entrepreneurs are choosing this option when pursuing the formation of a company. If a person feels that a LLC incorporation is the best avenue through which to achieve certain business objectives, he or she will be happy to know that the steps one must take to create such a company are not difficult.

If one feels the need, he or she may choose to consult an attorney to inquire about the positive and negative aspects of creating a Limited Liability Company. Alternatively, numerous online LLC incorporation firms exist which are equipped to answers questions individuals may have with regard to LLCs, as well as help one with the formation of his or her Limited Liability Company.

LLC Tax Rules and Methods

An LLC (Limited Liability Company) is similar to a sole proprietorship or partnership in its IRS classification as a “pass through entity.” Unlike a corporation, an LLC is not a separate entity that pays federal and state income taxes. The owners of the LLCs are called members, and any profits or losses realized during the tax year are reported on the personal tax returns of the members. Certain states assess annual taxes on LLCs, but federal income taxes are not paid directly from the LLC.

Federal Income taxes.

The number of member owners in the LLC will determine whether the IRS considers the business a partnership or sole proprietorship.

Single-Owner LLC.

For the LLC with one member, the IRS treats this business as a sole proprietorship for federal tax reporting purposes. All tax returns are filed will the tax identifier of the member and not directly from the LLC.

Schedule C of the sole owner’s 1040 tax return is used to report LLC profits or losses. All funds present in the company bank account at the end of the fiscal year are included in the asset calculation, and the IRS imposes tax on the money even if the funds are designated for future expenses or business expansion in the coming year.

Multi-Owner LLC.

For tax purposes an LLC with multiple owners is viewed as a partnership by the IRS. The LLC with multiple owners does not file federal tax returns under the LLC tax identifier. Each LLC member pays taxes on their individual share of the company profits through the filing of their personal income tax return using Schedule E. The initial LLC agreement sets forth the distributive share belonging to each member. Profits and losses are shared according to this agreement.

Profit Division. Members share the profits according to the operating agreement of the LLC. Each member’s share is distributed in proportion to the actual percentage of the business owned by the member. In special circumstances, the LLC profits can be divided without consideration of the percentage of ownership, which is considered, “a special allocation.”

Taxes Assessed on Distributive Share.

Even when a special allocation is used, the members will pay taxes on the distributive share as documented in the LLC agreement. When the LLC does not distribute all of the funds associated with the full distributive share, which happens for many reasons, the member is still responsible for paying the federal taxes on the entire share. Money left in the LLC will be taxed by the IRS regardless of the distribution at the end of the fiscal year. When business plans require funding for expansion or capital expenditures, the cash is left in the company, and the member’s pay the income taxes due.