What Are the Tax Advantages of an LLC?Create Business Growth | Create Business Growth

What Are the Tax Advantages of an LLC?


If you have decided to establish an LLC, you will benefit from specific tax benefits according to the IRS. Since you have finally created a business, it’s time to let it soar.

With an LLC, you also protect yourself from liability while conveying a more professional presentation for your business. Continue reading to learn more about the tax advantages.

Should You Form an LLC?

An LLC is formed through the state where you will be doing business. You would file articles of organization and pay a fee. According to Anderson Advisors, the LLC is the most flexible type of entity. It can also assume the tax attributes of any entity.

With regard to limited liability, it is like a corporation. Yet, it is also like a partnership when it comes to dividing the profit among owners. As a result, it can be treated as a partnership or corporation for taxes. What makes this entity quite beneficial is its flexibility in how management and profits and determined.

To illustrate, founders can put up as little as 10 percent in funding but still keep all management authority.

Business Deductions

With an LLC, you can take tax deductions for any and all legitimate business expenses. This can include money reinvested in the company.

Although, the deductions must past through the owners of the LLC–they are not taken on a business level. The business owners can note their tax deductions on their personal tax returns. Based on the percentage of ownership, deductions are distributed to members of the LLC.

As you can see, it is quite flexible. So, as an owner, you can add the deductions on your personal tax returns. This can be quite easy to manage for smaller businesses.

Pass-Through Taxation Benefits

One major advantage of an LLC is pass-through taxation. In contrast, the IRS will place taxes on corporations at the business level in addition to any profits or income paid to the business owner. So, a business owner of a corporation is taxed twice.

This is not so with pass-through taxation. The owner of an LLC is only taxed at the personal level. The LLC can then pay its profit earnings to any partners as profit payments, income or wages. Then, each partner will pay the taxes on their share of those particular profits.

If the company took a loss, each partner can deduct their share of that loss from their personal tax returns.

Lease Your Assets

Another benefit of the LLC is you have the option to lease your personal assets to the corporation. If you have a home office of computers, desks, phones and more–you can lease that to the office. Then, you can write it off as a business expense.

Yet, you’re still helping to increase your net income. Of course, you will need to have a formal lease agreement in place as this must be a legitimate business expense.

In Conclusion

The LLC is a very flexible entity type for businesses. It has several tax advantages and can be quite beneficial for startups.

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