3 LLC Tax Benefits Businesses Must Know About

important llc tax benefits limited liability company taxes savings

Paying taxes is one of the largest expenses that a business faces every year. How would you like to lower your company tax liabilities? Small businesses pay on average 19.8% in taxes. You may be able to lower the amount you pay in taxes by forming an LLC (limited liability company) instead of remaining a sole proprietor or independent contractor.

There are tax and legal advantages of forming an LLC that can easily be overlooked. Are you ready to learn all of the LLC tax benefits?

Let’s get started on 3 top LLC tax benefits for your business!

1. Employee Benefits

Employee overhead is often the largest expenditure for small businesses and LLCs. In order to be competitive and attract the best and brightest, you have to have a great benefits package.

Benefits like healthcare are expected, but that can be a huge burden for employers because healthcare keeps increasing.

You can deduct those expenses you use for LLC employee benefits, which can help you lower your tax bill.

2. Pass-Through Tax Deduction

LLCs can take advantage of a 20% pass-through tax deduction, which was included in the Tax Cuts and Jobs Act of 2017.

What this means for business owners is that you can deduct 20% of your business profit from your income taxes in 2023. While the LLC setup itself costs money and may have annual maintenance fees, in 2023 you will end up saving a lot more money than you spend with a limited liability company formation.

3. Capital Expenses

LLCs that have to invest in buildings and equipment can benefit from this tax deduction. Capital expenses are often related to real estate, and here is how they impact your taxes.

You can deduct large purchases over a period of years, instead of taking a massive taxation deduction in a single year.

How Much Can You Deduct?

How much you can deduct from your business taxes depends on what type of LLC or corporation you form. How can you compare an LLC vs corporation? Let’s take a look at how the IRS treats LLCs and corporations.

An LLC is a limited liability corporation. It can have one member, such as a sole proprietor, or several members or partners.

In the case of a single-member LLC, the IRS views the member’s finances and business finances as one and the same. Business owners report their income and business deductions on Form Schedule C and pay federal income and self-employment taxes on the net profits of the business.

For an LLC with multiple members, each member will pay taxes on their share of the profits of the business.

Corporations are treated differently by the IRS because the business and owner’s finances are completely separate. The owner usually receives a salary from the business, which they pay income taxes on.

The business is taxed as a separate entity, the business reports its profits and losses and is taxed on profits.

LLCs are often seen as more flexible because you can choose to be taxed as a corporation. For example, a single-member LLC can elect to be taxed as an S-Corp.

The Top LLC Tax Benefits

It is smart to register your business as an LLC because there are legal protections in place and there are LLC tax benefits to consider, too.

You can take advantage of limited liability company or ltd tax benefits like writing off capital expenses, employee benefits, and the pass-through deduction.

If you want more great business tips, be sure to visit this site often. For more accounting advice like top LLC tax benefits and ways to save on personal taxes, visit the Frugal Finances section of our site.

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