| When you organize your business as a sole | | | | within 75 days of the forming of the LLC or the |
| proprietorship or a partnership, you open yourself up to | | | | beginning of the tax year. You must be a United |
| personal liability on the debt of that business. The idea | | | | States citizen to make this election. |
| of an LLC is to limit that personal liability. Within the | | | | The other option is to file form 8832 and apply to |
| structure of a Limited Liability Company, your liability is | | | | structure the LLC as a C Corp. In this arrangement, |
| limited to the investment you made in the business and | | | | income is passed to the stockholders. The LLC can |
| that business's assets. However, the tax situation of an | | | | then take advantage of a 15% tax on its first $50,000. |
| LLC becomes very complex and it is generally | | | | The LLC must then file Corporate Tax form 1120. This |
| suggested that you convert your LLC to an S Corp, in | | | | election must also take place within 75 days of the |
| order to maximize tax deductions. | | | | formation of the LLC or the beginning of the new tax |
| When an LLC is a single owner entity, it is treated like | | | | year. |
| a sole proprietorship and all income from the business | | | | The organizational structure of the LLC addresses |
| is treated as earned income for the owner. This | | | | how business deductions are handled. These |
| means that all Medicare and FICA taxes. This means | | | | deductions are for things like health insurance, disability |
| that the owner is subject to 15.3% taxes on all income | | | | insurance, charitable gift deductions, and the use of a |
| up to $90,000 and 2.9% on all income above that | | | | vehicle for business purposes. Home office deductions |
| amount. If the LLC has multiple members, it is treated | | | | are impacted by the organizational structure of the |
| as a partnership and its earnings are earned income of | | | | LLC, also. The main purpose of the LLC is liability |
| the partners. | | | | limitation, but the tax incentives should be closely |
| To avoid this, it is necessary to have the LLC become | | | | scrutinized, as well. |
| an S Corp. This makes all the company income | | | | Before making these sorts of decisions regarding your |
| passive and it is passed on as passive to the owners. | | | | business, it is always suggested that you take some |
| For this to happen, the LLC must file an 1102S | | | | time to consult a business tax specialist. |
| Corporate Tax Return. This election has to be made | | | | |