LLC's can help provide a way to pay less income tax. If a business you own is being taxed as a Corporation, taxes are paid first at the corporate tax rate and any distributions from the company to the shareholders are then being taxed at the individual tax rate. Put together this is the highest tax rate possible for a business. When using an LLC, you can choose to be taxed as a partnership, an S Corporation or as a disregarded entity (sole proprietorship). Each of these choices will have only one tax and save you income taxes. Also, many individuals use an LLC partnership taxation or an S Corporation to save money on paying Self Employment Tax (SET). Doing this is a little more complicated and an expert should be consulted on the best way for you to do this.
Discounting for Estate Tax Purposes
Many clients will put together an LLC (or in some cases another entity) in order to make gifts of property to children and to discount the value of the estate. Whenever the property is divided among different owners, the IRS allows a discount on the total estate value based on the divided interests. This works like a sale. If you had a million dollars of taxable estate on your death, you could pay 45% of that to the federal government. If we discount that taxable portion of your estate, you could first reduce the total by the discount (Typical discounts are 25-35%). Then instead of paying 45% of a million you would pay 45% of $750,000 or less. That is a savings of over $112,000 all because of the divided interests and other discounting advantages of an LLC. Be careful, if the LLC is not set up correctly, the discount can be eliminated.
LLC's provide a special kind of asset protection. If your business was in an LLC the creditors of your business would not be able to take personal assets away from you should they sue your business and win a large judgement. By placing risky assets into an LLC, you can protect yourself from losing everything to the creditors of that business or asset. To add another level of protection a few states have allowed for a "Sole Remedy" to creditors by statute. This sole remedy will allow you to protect the business assets from the same creditors. Another name for this protection is Charging Order protection. Even if you don't live in a state allowing charging order protection, you can still form your LLC in that state and run it from your own state using a registered agent. An LLC is a great way to protect the business you have built or real estate you own from potential creditors. Make sure you set up the LLC with a specialist to make sure it's done right.