All of the responses so far are correct. You don't say why people are telling you to form an LLC for tax purposes. There are different tax issues.
An LLC is a state chartered business entity. It is a separate issue how it is treated by the IRS for federal tax issues. By default a single member (SM)LLC is consider by the IRS to be a "disregarded entity". This means the LLC does not file taxes, you file as a sole proprietorship on a Schedule C. You can file an IRS form to elect for the LLC to be treated as a corporation (effectively the same as S-corp.)
Many people mistakenly think that you need to form a LLC in order to deduct business expenses. Simply not true, since you file a SMLLC exactly the same as a sole proprietorship (Schedule C). Also, you don't need an LLC to operate with a business name. You can do so by Doing Business As (DBA). In most states this only requires a simple registration of the DBA with the state.
A SMLLC elected to be treated as a corporation for tax purposes and a S-corporation provide a much more structured business entity. The business is now a separate entity from you individually. However, it is more complex to operate and do your taxes. You are now paid wages as an employee and the business can have profits that can be retained and/or returned as dividends. The key thing people talk about saving with a corporate structure is not paying Self-Employment (SE) tax on a portion of your net business income
So the bottom line is you really should get get state specific professional advice. Personally, I determined that with increased state filing fees, state tax issues (no personal income tax, but business profits tax), less SE tax (but less SS earnings), increased professional fees, and general complexities it simply was not worth it. I just settled on a SMLLC with default IRS treatment.
by snoop9928 » Sun Sep 22, 2013 10:07 pm
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