Before making any decisions, we like to make a mental overview and run a comparison of the pros and cons. This strategy is of crucial importance in business matters. You have to weigh your options carefully before making choices that could affect your finances, your career and your future. When in doubt, ask a tax professional for guidance and assistance. After all, nobody has more experience or better insight than the best corporate tax consultants in San Diego.
We are here to provide guidance and professional assistance, as well as help you understand how corporate income taxes are calculated depending on the business entity you choose. And if you are considering starting an LLC, here is what that means in terms of taxes.
Which is better for taxes LLC or sole proprietorship?
From the perspective of business organization, implementation and taxation, both options have their upsides. Still, LLC has the upper hand. Due to being the most flexible type of business entity, LLC gives the owners more options, allowing both the owner and the LLC to save money on corporate taxes.
For instance, unlike a sole proprietorship, LLC offers the owner protection from liability as well as the possibility of pass-through taxation, a benefit typically reserved for partnerships and sole proprietorships. On the other hand, a sole proprietorship makes the sole proprietor personally responsible for any and all financial and legal liabilities and obligations of the business.
Should I tax my LLC as a corporation?
First, let’s take a look at your options. Once you decide to start an LLC to own and operate your business, you are free to decide how you want your business to be taxed. Namely, LLC is not a business form recognized by the IRS for tax purposes. In other words, you have to decide how you want your LLC to be treated by the IRS.
You can decide to have your LLC treated as one of the following business entity types:
- Sole proprietorship
- S corporation
- C corporation
Unless you make a decision, there are two ways that your LLC can be taxed by default. Single-member limited liability companies are seen as disregarded entities. As such, they are taxed as sole proprietorships. LLCs with multiple members will be taxed as partnerships. In that case, LLC owners are required to pay self-employment tax.
Most businesses opt for the option which comes with the lowest tax rates. It is worth noting that the personal tax rate is higher than the highest corporate tax rate, currently set at 21 percent. If you have a high total taxable income, you do not want your business to be included in your individual taxes.
This can be accomplished by having your LLC taxed as a corporation. If you decide to tax your LLC as a corporation, you can count on corporate tax deductions. You are also not required to pay self-employment tax in that case.
What is the best choice for my LLC?
As mentioned above, taxing your LLC as a corporation allows you to reap multiple benefits, although pass-through taxation certainly has its perks. Only an experienced professional tax consultant can help you understand whether pass-through taxation is the road you want to take. Restrictions may apply in terms of the number of owners and certain types of fringe benefits. Because of how intricate the situation can be, you would be best-advised to consult a tax consultant beforehand to resolve your concerns.
We mean business
Rely on the leading corporate tax consultants of San Diego to look out for you and act in your best interest. Whether you need to inquire about your rights and obligations or want to find an elaborate explanation of whether LLC is the optimal choice for your business, reach out to us. Our helpful staff handles everything from business incorporation services to bookkeeping and payroll services, to managing corporate and individual taxes for the residents of San Diego. We are in it for the long haul. Contact us today for consultation and assistance.