Let’s face it, running your own business isn’t easy. Especially when you’re just starting out and don’t have a lot of capital to invest in your new venture. If you are thinking about launching an LLC and want to keep your business costs as low as possible, an LLC may be the right choice for you. An llc does not need an ein if the company is not operating as a sole proprietorship or partnership (e.g., there are no partners). However, if you plan on taking advantage of any employee benefits, taxes or other incentives from being registered as an llc, you will need to obtain an EIN for your organization. For example, if you want to take advantage of the following tax benefits as an llc—or any other entity type—you’ll need to register for one: –
Tax Breaks for Small Businesses
An llc is the most common business form for small businesses. You can form an llc without completing a complex legal process or spending a lot of money on attorneys. You’ll also have flexibility in how you structure your business. An llc is a great choice for businesses that are not expected to have receipts of more than $5 million in any given year. For example, if you’re an llc and your business doesn’t bring in more than $5 million in annual gross receipts, you might be able to choose how to treat your business income. You can report the income on your individual tax return as a sole proprietor or declare the income on your llc’s return.
20% Deduction for Pass-Through Income
An llc allows you to skip the process of filing a Schedule C and instead report business income on the 1040 through a special deduction called the pass-through deduction. The pass-through deduction is the amount of gross income the llc receives from its business activities that flows to the llc’s owners. You report the full amount of the pass-through deduction on your individual 1040. The llc does not have any business income, expenses or deductions. As an individual owner of the llc, you report any non-business income you earn on your 1040 and take a deduction for the pass-through income. This means you do not have to pay self-employment taxes on the pass-through income.
Carried Interest Capital Gains Treatment
If you have an llc that is generating income from investments in real estate, oil or gas properties or other capital assets, you may qualify for carried interest capital gains treatment. This means any income you receive from your assets is taxed at the lower long-term capital gains rate (15%) instead of ordinary income rates (over 35%). However, you must meet specific criteria to qualify for this tax break. For example, you must have an llc, a partnership or a sole proprietorship and make investments of at least $250,000 in real estate, oil and gas properties or other capital assets. If your llc is generating income from these types of investments, you can elect to report the income and capital gains from the assets on Form 1040 instead of on Schedule E.
LLC Losses Can Be Used by Partners and Employees
If you have an llc and your business experiences a loss in any given year, you are allowed to deduct the loss from your other income. Losses from an llc can be used to offset income from other sources, including wages from an unrelated job, self-employment from another business or other types of investments. Losses from an llc can also be used to reduce your taxable income and lower your overall tax bill for the year. An llc can deduct the loss from its taxes by reducing its taxable income. When an llc deducts a loss, it’s like shifting the loss from the business to its owners. The owners then use the loss to reduce their taxable income.
Conclusion
An llc is the most common business form for small businesses. When you form an llc, you establish a legal business entity that can own assets, enter into contracts, hire employees and incur debt. llcs can be operated by a single person or a group of people. You’ll have to report the llc’s income and expenses on your personal taxes as well as on the llc’s annual tax return. An llc is a great choice for businesses that are not expected to have receipts of more than $5 million in any given year. For example, if you’re an llc and your business doesn’t bring in more than $5 million in annual gross receipts, you might be able to choose how to treat your business income.