Picking the right business structure is a big deal for any business owner because it impacts your taxes, personal liability, and more. For a lot of businesses, a Limited Liability Company (LLC) is an appealing option. It’s flexible - for liability, it can act like a corporation, but for federal taxes, it can work like a partnership. This mix can offer some nice perks.
Like corporate shareholders, LLC owners (called "members" instead of shareholders or partners) generally aren’t personally on the hook for business debts beyond what they’ve invested. So, you can run your business knowing your personal stuff—like your house or personal investments—are safe from business creditors. That’s a much better deal than partnerships, where general partners are fully responsible for business debts. Even limited partners could be at risk if they’re too involved in running things.
Choosing Your Tax Setup
LLC owners have the option to choose, through the “check-the-box rules,” to have the business taxed like a partnership for federal taxes. This can be a big advantage because partnership profits aren’t taxed at the business level. Instead, they “flow through” to the owners based on their share of the business and are only taxed once on their personal tax returns. If that income counts as qualified business income (QBI), you might be eligible for the QBI deduction—though there are some rules around that.
Another perk is that, since you're actively running the business, you can write off your portion of any losses on your personal tax return. This can help offset other income you and your spouse might have, which can be a handy tax break.
LLCs also let you customize how tax benefits are divided among members, which is a big plus compared to S corporations. S corps are more limited—like, they can’t have more than 100 shareholders, and they can only issue one class of stock.
Weighing Your Options
An LLC can protect your personal assets from creditors while giving you the tax benefits of a partnership. Just keep in mind that LLC rules vary by state, so it’s important to know the specifics where you live. Reach out if you want to dive deeper into whether an LLC or another business structure is the right fit for you and your co-owners.
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