Wtf is an llc?
Llc stands for limited liability company
An LLC is titled “Limited Liability” because when you register your business as an LLC it gives you personal protection by allowing your business to operate as its own, distinct entity.
This is why its beneficial:
An LLC is the preferred form of business organization. Your business is given a Tax Identification Number called TIN. It's basically like your business’s social security number. You’ll be able to open a bank account in your business’s name, completely separate from yours. You’ll will also be personally protected from any debts of your business and be protected from any judgement of, or lawsuit against your business.
For Individual owners there are many benefits. You’re taxed as a sole proprietorship. Sole proprietorship is simply a business that legally has no separation from its owner. The money that the business gains and loses are taxed on the owners personal tax return. Being taxed as a sole proprietorship has its perks! You get paid from the business’s income, and it’s taxed at your (the individual owner) potentially lower marginal tax bracket. A marginal tax bracket or marginal tax rate is the amount of tax paid on each dollar the individual makes. So ulitmately, you pay taxes based on every dollar you make as an individual, rather than every dollar your business makes. Your business’s Losses are also passed-through your personal taxes, offsetting your personal/nonbusiness income. This means that your business’s losses could balance out the taxes that you have to pay for each dollar that you profited.
Similar benefits apply for multiple owners, plus the added advantages of a corporation.The LLC will be taxed as a partnership. A Partnership is when two or more persons join to carry on a trade or business. Partnerships must report the their LLC’s gains, losses, deductions, etc. every year. Partnerships do not pay taxes on the money that they make.They are classified by the government as “pass-through” organizations.The losses and gains from the partnership is passed-through to it’s partners, each of the partners reports their share of the LLC’s gains or losses on their tax return.The LLC’s owners could request for their LLC to be taxed as a corporate entity. This option is usually preferred, but if the owners do not REQUEST for their LLC to be taxed as a corporation, they will be taxed as partners.There are two options within this option. “S corporation” and “C corporation”.
Under the “S Corporation” form:
•Each owner pays personal income tax for each dollar they make from the business.
•All of the business’s taxes are passed-through to the owners.
•Shareholders must be U.S. Citizens or resident aliens.
•No More than 100 Shareholders
Under the “C Corporation” form:
•Each owner pays personal income tax for each dollar they make from the business.
•The business pays corporate income taxes.
Sign me up! What’s next?
There are a few guidelines that you must follow in order to register your business as an LLC in your state.
Choose a Name.
•Your LLC's name has to comply with your state's LLC division's regulations.
•The name of your LLC can't be the same as any other business that is already on file with the LLC office of your state.
•The name must end with "Limited Liability Company," "LLC," "L.L.C.," or "Ltd. Liability Co."
•Your LLC's name cannot contain any of the following state-prohibited words:
•"Bank"
•"Insurance"
•"Corporation"
•"City"
Your state's LLC office can tell you if the name that you choose is available. Now it's time to file the necessary paper work. The required paperwork varies between states. Most states call the main document of the LLC registration forms "Articles of Organization."Some states refer to it as the "Certificate of Formation," or "Certificate of Organization." To find the required paperwork, you can visit your state's LLC division's website. There will be fees associated with filing your paperwork. In most states it's about $100.00 but in some states, it can be pretty pricey. California, for example, charges an $800.00 annual tax, plus the filing fee. See ya on Shark Tank! :)