As a business owner, you might have looked into different entity types. This includes, but isn’t limited to, sole proprietorships, partnerships, corporations, and limited liability companies (LLC). Perhaps you’ve already conducted a bit of research on the differences between the latter options, but your heart isn’t quite set on an entity yet.
One affordable way to incorporate your business for legal and tax considerations is to opt for an LLC. Before you do go this route, however, there are some things you should know first, such as the following information.
LLCs are a Combination of Sole Proprietorships and Corporations
LLCs are their own unique entity. However, it’s essentially a merge between a corporation and a sole proprietorship or partnership. LLC business holders can take advantage of pass-through taxation that a sole proprietorship or partnership would have while holding limited liability that a corporation would offer. You truly get the best of both worlds with a limited liability title.
You’ll Have to Pay Maintenance Costs
Not only is there a formation or registration fee that you must pay when you initially opt for an LLC, but you’re also going to be required to pay maintenance costs. Depending on the state you form your LLC in, maintenance costs will have to be paid once or twice a year.
You can expect your registration fee to be approximately $40. Although, this will vary state to state. As for maintenance costs, be prepared to pay hundreds.
You Won’t Have to File a Corporate Tax Return
Since limited liability companies are considered pass-through entities, LLC business owners can usually avoid having to file a corporate tax return. Instead, you would file a personal tax return rather than a separate one specifically for the entity itself. For you, this means getting to avoid pesky double taxation.
Taxes Can’t Typically Be Avoided if You Form an LLC in Another State
Some states, like Nevada, lack business income taxes. However, the downside with forming an LLC is that you normally can’t avoid taxes by forming in a different state from the one you live in. In actuality, you’d still be required to pay taxes in your state.
An ITIN is Necessary for Non-US Citizens
Normally to form an LLC in the United States, the owner would need to obtain and provide their employer identification number (EIN). However, as for non-US citizens who don’t have a social security number, they would instead need to acquire an individual taxpayer number (ITIN) as opposed to an EIN.
If you don’t know how to apply for an ITIN number, the process is relatively quick and simple. Simply file online on the IRS’s website.
There are several different business entity types in the United States to consider picking amongst. However, one thing is for sure: LLCs are one of the top entities business owners often opt for, including owners of small businesses. Due to their affordability and overall convenience, it makes perfect sense to consider this entity type for your business.