If you are launching a new business, you may want to consider forming a separate entity such as a corporation or LLC, to protect your personal financial life.
The legal form of your business brings different tax implications. When forming an LLC, you receive the benefits of creating a separate entity and thus protecting your personal assets.
When it comes ...to taxes, however, the IRS has no tax return for an LLC per se. You may treat the LLC as a C or S corporation, partnership or sole proprietorship and file accordingly. Your state taxing agency may have a special set of LLC tax forms for your entity to file.
Entity selection is not something to rush into without first consulting a good business attorney and tax professional. While the internet is a great resource, there are many error-filled websites offering bad advice that can be costly down the road and land you in hot water with the IRS.
There are many things to consider when choosing a business entity. First of all, if you have no assets to protect and a good insurance policy, you may be fine operating as a sole proprietor. But this is something that must be discussed with an attorney to protect your personal finances.
Your company’s success and reputation does not hinge on how it’s classified, and employee benefits are deductible by all business entities. However, the only way to ensure the deductibility of benefits paid to an owner/shareholder is to incorporate as a C corporation. An LLC can elect to be treated as a C Corporation for tax purposes and therefore enjoy this benefit.
Another benefit of becoming a LLC is that you free yourself from personal liability for corporate debt. However, in the real world, lenders seek personal guarantees for corporate debt.