Virginia residents thinking about new business ventures may wonder about the impact of the form that they choose on their personal finances. During business formation, establishing a separate entity may be important to ensure that one's personal financial life is separated from a business. An LLC allows this separation to occur so that personal assets can be protected. However, it is important to note that the IRS doesn't have separate tax returns for this type of business designation. Instead, an LLC may be treated as a sole proprietorship, a partnership or as an S or C corporation. At the state level, there may be forms to file.
An LLC may offer benefits, but it may not be necessary to use this type of business formation if an owner has reliable insurance or no assets to protect. If it is desirable to be able to deduct benefits paid to a shareholder or owner, however, then an LLC may be a good choice. Treating the LLC as a C corporation may facilitate appropriate deductions. At the same time, this type of business designation may free an owner from personal liability for debts incurred by the business. Costs may factor into a decision about forming a separate business entity. Filing fees, franchise taxes and tax preparation costs are just some of the expenses to consider.
Some business owners make decisions about the type of entity to form based on state fees related to a given status. However, fees may not be the best indicators of suitability. Legal implications should be considered prior to making these decisions.
An attorney who is experienced in business law may provide helpful insight into the advantages of an LLC or another type of company formation. It may be helpful to consult an attorney so that long-term costs and implications can be explored.
Source: FOX Business, "The Tax Implications for Forming a LLC", Bonnie Lee, June 13, 2014