The Amazing Tax Benefits Of An LLC
Summary: The two most expensive things in life are taxes and interest, and we want to avoid both. One of the best ways to avoid taxes is by starting a business. Today we will discuss LLC vs S Corp and the amazing tax benefits of having a business.<br> We want to illustrate the massive tax advantages allowed to small businesses and how utilizing these advantages can be as beneficial if not more so as compared to traditional retirement accounts. Also, they can be used in conjunction with retirement accounts for an added big advantage.<br> Anyone Can Do It<br> A long time ago we did an episode with <a href="https://www.listenmoneymatters.com/natali-morris-family-business/">Natali Morris</a> about turning your family into a business. It inspired me to set up an LLC as LMM had advised me to do. Today we want to encourage many of you to start an LLC or S Corp to reap that <a href="https://www.listenmoneymatters.com/tax-deductions/">tax advantages</a> of doing so.<br> If you have a hobby, you have a business. We did an entire <a href="https://www.listenmoneymatters.com/online-businesses/">series</a> about starting a business that with just a few hours of work a week, will make you $1,000 a month within a year. And bringing in some extra money is far from the only incentive to start a small business.<br><br> <br> Uncle Sam Wants You To<br> The US economy is driven by small businesses, and our tax law is set up to incentivize and reward business owners. Many of us knew that, but the numbers might surprise you. Almost 100% of US employment firms are made up of small businesses, <a href="https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf">99.7%.</a><br> There are 5.9 million firms with at least one employee and 3.6 million with fewer than five employees. There are less than 20,000 companies in the US that employ more than 500 people.<br> LLC Benefits<br> There are a few ways to make a business official so you can start reaping all those juicy tax benefits but an LLC, a limited liability corporation, is the simplest and the most flexible.<br> Passthrough Taxes<br> One of the most significant benefits of an LLC is that of pass-through taxes. LLC owners don’t have to file a corporate tax return. An owner simply reports their share of profit and loss on their individual tax return.<br> This prevents double taxation, your business paying taxes and you paying taxes. In an LLC, the business doesn’t pay any taxes, only the owner.<br> Legal Protections<br> Once you have set up an LLC, you have created a separate legal entity. This protects you and your personal assets. The LLC is solely liable for its debts and obligations, the owner of the LLC is not. If the LLC were to be sued by a creditor, that creditor could only go after the LLC’s assets and not the owner’s.<br> Your Life is Cheaper<br> Having an LLC makes your expenses less expensive. A <a href="https://www.listenmoneymatters.com/go/republic-wireless-2/">cell phone</a> is an excellent example of this. A cell phone plan that costs $100 a month is $100 a month if you run a business. If you are a W-2 employee working for the man, you are paying for that cell phone with post-tax money, so you actually need to earn $125 to cover that bill.<br> Essentially, for every $1,000 in business-related expenses you’re paying $250 more as a W-2 employee than you would be if you started a business and set it up as an LLC. These expenses include everything it takes to run your business; your cell phone, internet, electricity, and if you’re LMM, beer!<br> If your spouse is involved in the business, guess what? Date night dinners just got 50% cheaper so long as you spend part of the meal discussing business.<br> <br> You Win When You Lose<br> What if your business isn’t making a profit? Your initial losses are still beneficial. LMM is an example.<br> It took LMM about two years to declare a profit during which time Andrew wa...
