Benefits of a Limited Liability Company?

Business owners shoulder the burdens of costs and taxes. The U.S. tax code is millions of Words long. Figuring out which parts of the code apply or do not apply is a herculean task. Small businesses are faced with making enough profit to pay the taxes they need to be able to stay in business. A particularly egregious example is taxing business owners twice. The profit from the business is taxed, and the income they make from their business is also taxed.

Fortunately, there is a way for businesses to avoid double taxation and other inconvenient consequences. Business owners are personally liable for the debts of their business if it fails. They can solve both of these problems by forming a limited liability company or LLC. Under the protection of an LLC, business owners are not personally liable for debts and lawsuits against their business. Even if it eventually fails, they are still protected under current United States law.

Should the business default on debts, creditors are prohibited from filing claims on the owner's personal assets. In certain situations, this can really come in handy. For example, a business that runs a storefront shop that interacts directly with the public may need the extra protection from an LLC. Business insurance usually doesn't protect against lawsuits. The risk of frivolous lawsuits makes having an LLC indispensable for these types of businesses.

Forming an LLC means paying only one level of tax. Any profits or losses are passed directly through to the owner, who reports profits and losses on his personal tax return. LLC owners must also pay self-employment tax in addition to their income tax. Pass-through taxation does not eliminate the liability for this tax. LLC owners pay twice as much self-employment tax as employees do, because employees' taxes are matched by their employers. The good news is that LLC owners can deduct half of their tax from their total taxable income.

An additional benefit of an LLC is that, unlike C or S corporations, no annual meetings or minutes are required. This saves the LLC significant sums of money because they do not have to pay the costs of filing that paperwork. LLCs afford protection from rabid creditors and plaintiffs and provide great tax advantages. Business owners starting down the entrepreneurship road would be well advised to form an LLC.