Here at Tax Planning Pros we usually don't start working with a business until they are making a profit. You see, taxes aren't really an issue until then. If you're not making any money, you're not paying any taxes right? Start Ups also have limited resources for tax planning and accounting support in the beginning.
However, I've seen many startups pay too much in taxes, in the year that they start making a profit. This is because they didn't know the best way to set the business up initially. We get a lot of calls from start-up businesses looking for guidance so I wanted to specifically write this blog for you. Since we have a minimum income requirement in order to work with us, this article will discuss what an LLC is and why you should go ahead and set your business up as an LLC, from the beginning.
A Limited Liability Company is a State designation, that puts a level of separation between you personally and the business. This limits your personal liability. If a customer sues your business, for example, they usually cannot come after your personal assets, such as your home, if the business is organized as a Limited Liability Company (LLC). For tax purposes, however, an LLC gets to choose how it's taxed. No other entity gets to choose how it's taxed. This is one very unique quality of the LLC. If you are a single member LLC, the default tax entity is a sole proprietorship. If you are a multi-member LLC, the default tax entity is a partnership. But an LLC could elect to be taxed as an S-Corporation or a C-Corporation as well.
At Tax Planning Pros we LOVE the flexibility of the LLC. It's easy to change the way you are taxed without the hassle of setting up a whole new entity, with a new tax id number and new bank account etc. The LLC gives us options that can save you taxes down the road, when your business has grown and you need to find ways to reduce your tax burden. It's inexpensive to set up and we think it just makes good common sense. Think of it as cheap insurance.