People think they know everything about the business if they know how to create A LLC. But, the fact is you only learn the steps to create the LLC. You learn how to move from one step to another for A LLC formation and nothing more than that.
If you are planning to create A LLC, you should know everything about taxes. You should know what tax benefits are available with A LLC to create and what taxes apply to LLC member(s).
What are the LLC tax benefits?
Tax flexibility
An LLC has the option to be taxed as a corporation or as a pass-through entity. Here, you can be taxed as a sole proprietor or partnership or as a C-corporation or S-corporation. These are the forms of LLCs. With this flexibility, you can choose the most beneficial tax approach for your company.
Avoids double taxation
Double taxation happens when corporations pay taxes on income and shareholders or owners to pay taxes on their personal returns on the dividends they receive. This doesn’t apply to sole proprietorship or partnership. If you choose to be taxed as a corporation, double taxation will apply.
Business deductions
As A LLC owner, you can strike off several expenses as business tax deductions. This reduces the amount you owe on your income tax or your business owes as a corporation. But, it depends on how you choose your LLC to be classified and taxed. You should be very careful about the same during LLC create.
What are the taxes for A LLC?
Estimated taxes
As a self-employed individual, no one can withhold taxes for you, which was possible when you used to work under an employer. Keeping this in mind, you might be required to pay estimated taxes throughout the year. The estimated taxes are paid in four installments, which are based on expected income for the year.
Self-employment taxes
Self-employment taxes include Social Security and Medicare Taxes. Along with the income taxes, self-employment taxes apply to you. For an employee, the employer pays half of the Social Security and Medicare taxes and withholds the other half from the paycheck. But, as a self-employed individual, the entire tax amount is your responsibility.
State taxes
A LLC has to pay federal taxes for operations. But, in some cases, state taxes are applicable for A LLC. You might have to also pay state taxes along with federal taxes. But, this depends on the state your business is located in.
Local taxes
Other than state taxes, the location of your business decides whether you are required to pay local taxes or not. It’s said that A LLC business located in a city or country that has a business license needs to pay local taxes.
Taxes decide the future of A LLC business. They ensure smooth operations. And if you fail to pay the taxes on time, you might be subjected to a penalty. Sometimes, the penalty amount is very high. So, it’s better to understand LLC taxes before you study how to create A LLC. You shouldn’t just follow the LLC formation steps blindly.
