Is Your LLC Giving Your Money to the IRS? (Part 1)

One of the most important decisions you will make as you start your business is what kind of legal structure you will choose.  Often people make costly mistakes when they select the way they set-up their business. 

Many people starting a business think, or after listening to a well-meaning friend believe, they need to “be an LLC” (meaning a Limited Liability Company). When appropriately structured, an LLC can benefit your future business in a variety of ways. 

The LLC has many valuable applications, but it is simply not a one-size-fits-all choice for your entity formation. Making the right selection for your business structure has long-reaching repercussions and impacts on your future business, so it is not a decision to take lightly.

The LLC is a unique business structure. 

In my professional experience, I have found the LLC to be very misunderstood, so you need to do your homework. So what do you do? Let’s start with a little education. Studying this 3-part LLC blog, “Is Your LLC Giving Your Money to the IRS?” can be an initial step in your understanding of the LLC as we explore the basics of how the LLC functions and the taxing options available to you.

First becoming available as a legal business entity in Wyoming in 1977, the LLC has become a popular legal alternative for new business owners. The LLC is a hybrid of sorts, combining the characteristics of the partnership and the corporation, which is why I say it is misunderstood.

Being “the new kid on the block,” with only Florida and Wyoming having statues on the books before 1990, the laws governing LLCs are still being fine-tuned and evolving.

Secondly, LLCs do not have shareholders.

LLC owners are called “Members.”

Last but not least, many people do not know that for tax purposes, the LLC business structure is not a recognized entity by the Internal Revenue Service. Yes, I am saying, the IRS does not consider a LLC to be a separate entity distinct for tax purposes. It is strange, but true. 

I find a large percentage of LLC structured business owners to be taxed, usually by default, in a fashion that is not the most advantageous for them. This oversight or misunderstanding can result in thousands or tens of thousands of excess tax dollars being paid to the IRS by the unsuspecting LLC business owner.

Do you want to donate to the IRS by paying seriously more tax dollars than you are legally required? Of course not!

You must make sure you are appropriately taxed for your given circumstances. And how do you do that? As a responsible future business owner, you absolutely need to educate yourself and make some right choices. A few dollars for expert direction is well-spent.  It can literally save you thousands or tens of thousands of dollars.

Business Untangled is expert in business strategy.   Contact us today for professional direction when making the right choices for running your small business.  Your first call is free.