Tuesday, July 14, 2009

More Questions about LLCs & Corporations

I get so many inquiries about LLCs and corporations that I again feel the need to give some general instruction on question asking and doing a little research on your own.

Were you to search "LLC" on my blog search facility in the upper left corner of your screen you'd get about 20 posts on LLCs. Read them all.

Perhaps the most complete for a general understanding is LLC? Incorporate? It states, as do many other posts: An LLC is not a tax entity. It is a legal entity. And so an LLC may save you from some legal difficulties but an LLC in and of itself will not save you anything on taxes.

So the question, "If I'm an LLC will I pay less tax?" is sort of like asking, "If I have the roof repaired will I still need a new sofa?"

An LLC provides protection against lawsuits. A corporation also provides protection against lawsuits. Insurance protects you if you are sued. So, from what do you need protection? Decide that first. Then choose the appropriate protection.

You wouldn't get auto insurance if you didn't own a car.

If you renege on a contract or miss a deadline are your clients likely to sue you for your house and its contents? If your lawnblower breaks your client's pink flamingo will she sue you for all your landscaping equipment?

Both an LLC and a corporation provide protection against lawsuits. Do you need the expense and hassle of both? Does the coverage overlap? If you are looking for protection against lawsuits then talk with a lawyer to help you decide what's best for your business.

And the question, "Should I incorporate to save on taxes?" always seems to arrive without any other pertinent info. Nothing about whether income is $1,000 a year or 2.5 million a year. Whether there are employees or not. Whether the income is profit or all for services performed.

So: Should I incorporate to save taxes? Probably not. But maybe.

June Walker

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