One significant advantage of an LLC

On Behalf of | Dec 19, 2018 | Business Formation

When starting a business, it’s important to carefully consider exactly what type of business you want to run. One of the more popular options these days is the limited liability company (LLC). Now, there are many factors you have to consider when deciding if an LLC is right for you. To get this process started, let’s take a look at just one significant advantage: Avoiding double taxation. If you start a corporation, you may get taxed twice. First of all, your corporation has to report the net income for the year and pay income tax on everything that is earned. Second, if the corporate owners get dividend income themselves, they then have to turn around and pay taxes on that income. Essentially, the money is getting taxed as income twice, sending a larger percentage of it over to the government. This taxation also happens to other shareholders who own a percentage of the company and get paid accordingly. That money is viewed as personal income and taxed, even though it was already taxed when the company declared it as income the first time around. With an LLC, you do not get taxed twice. That’s also true for other types of businesses. It’s one of the downfalls of starting a corporation and one of the reasons that people choose to start LLCs in the first place. Naturally, taxes are not the only thing to consider when starting a business, but you may want to take them into account and determine what business type gives you the most advantages. Then you can look into the legal steps you need to take to start that company.