It’s difficult to overestimate just how impactful the right entity structure can be for a business; choosing the right one can provide business owners with a range of opportunities to save on their taxes.
LLC structure’s in particular can help a business pay less income tax, and after engaging with professional tax planning in Miami, you may well be advised to use this particular structure for your company.
Here we look in a little more detail at taxes for LLCs, and how you can maximize certain credits and deductions to reduce your income tax commitments:
How exactly do LLC taxes work?
At a federal level, LLCs are recognized as being pass-through entities, meaning that they’re not taxed on the same level as an entity. Instead, the LLCs income revenue gets passed on to the owner of the business, who then pays taxes on it on their personal income return.
That said, how an LLC is structured in terms of ownership plays an important role in determining how it pays its taxes, and there are three different structures:
- Single-member
- Multi-member
- C-corporation or S-corporation
What are the tax advantages of an LLC?
Below are the most significant tax advantages of structuring an entity as an LLC:
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Qualified business income deduction
Abbreviated to QBI, this is a significant tax advantage for eligible LLCs, such as sole proprietorships, S-corporations and partnerships, allowing them to deduct on their taxes, up to 20% of their qualified net business income.
As with any tax deductions, it’s always best to check with a tax professional before filing to make sure you’re claiming the right ones and maximizing them.
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Increased contribution limits
For your life insurance policies and retirement accounts, increased contribution limits is another compelling tax advantage for LLCs.
In terms of life insurance, while the IRS don’t consider it to be a business expense, you are permitted by the federal agency in some instances, to make the most of tax-saving deductions and deduct the premiums for both yourself, and your employees.
Where retirement accounts are concerned, a contribution of up to 20% is permitted by single-member LLCs, while up to 25% of net compensation may be contributed by multi-member LLCs.
Some other tax advantages applicable to LLCs
If your company is structured as an LLC, there are many different business expenses that you may be able to deduct, and while many might well be familiar to you, such as office supplies, utilities and rent, there may be others that tax services in Fort Lauderdale can recommend, that could help you lower your income taxes.
Here are just a few of them:
- Health insurance expenses
- Business travel and conferences
- Charitable tax credit
- Home office expenses
It’s always worth at least knowing about some of the less commonly known LLC tax write-offs, so that a tax professional can tell you if you’re eligible for them. But ultimately, working with tax services (whether you go local, outsource or offshore) is always a good idea for the overall financial health of your business anyway, no matter what entity structure you plump for.
