An LLC protects personal assets if the business cannot pay its debts. The LLC’s creditors can only take the money invested in the business. You can transfer cash, real estate, securities or personal property into an LLC. Then you can pass those assets to heirs. Using an LLC for real estate investments facilitates ownership transfer.
Choosing Between LLC and Corporation
Ultimately, the choice between an LLC and a Corporation for a small business depends on factors such as the desired level of liability protection, ownership structure preferences, tax considerations, long-term goals, and the specific needs of the business. It is advisable to consult with legal and financial professionals to make an informed decision based on your business’s unique circumstances.
Tax Considerations for LLC Members
In an LLC, members must pay self-employment taxes – Social Security and Medicare taxes – directly to the IRS. These tax rates change annually, but the self-employment income tax rate in 2022 is 12.4% for Social Security and 2.9% for Medicare, according to the IRS. With an S corp, shareholders are paid a salary, and the business pays their payroll taxes, which can be deducted as a business expense from the company’s taxable income.
Small business owners often choose to structure as an LLC because it offers more freedom than corporation structures do. But before you make this critical decision, it’s important to know the differences between LLCs and S corps.