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Why Form LLC?
It's not too late to incorporate or form an LLC to reap significant tax benefits.
There are many benefits to incorporating or forming an LLC. For example, with a corporation or LLC, one can minimize self-employment taxes and increase the number of allowable deductions, thereby lowering the taxes paid on the income of the business. In short, there may be a combination of circumstances involving income and/or expenses that can make converting to a corporation more attractive.
Better Tax Rates & Lower Tax Liabilities:
For solely tax purposes, a corporation is a separate and distinct entity. Sole proprietors and sole proprietors functioning as a single-member LLC have pass through income, and are subject to personal tax rates on Form 1040, via Schedule C. However, there is a strong possibility that business sales, after incorporation, will be exposed to a flat rate of 15%, as opposed to the often much higher personal income rates. Further, with a corporation, compensation can be paid to employees of the corporation (which may include you), and this will qualify as a deduction to the corporation. Then, the employee pays income taxes only on the amount of compensation, as opposed to the entire profits of the corporation, and the remainder of the corporation’s profits may be taxed at the lower corporate tax rate. Therefore, proper tax and business planning can result in aggregate lower income tax liabilities.
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