Why form an LLC?

Why form an LLC?

Just consider the key benefits of forming a limited liability company (LLC):

Secure your personal assets through liability protection

What Do You Have to Lose?
As a sole proprietor, your liability for business debt is unlimited. Personal assets such as your home, personal bank accounts, and other valued assets may be at risk.

What does this mean? It means that if your business experiences severe financial difficulties, creditors can take away your personal property such as your home, retirement savings, or any other asset you or your spouse own.

In our increasingly litigious society, it is becoming ever more important to limit your exposure and protect yourself from liability.

Incorporating your business draws a firm line between your personal and business assets, helping protect your personal assets from risks or debts associated with running your business.

Deduct certain expenses

Self Employment Taxes and Deductions
If you are operating as a sole proprietor, you will be required to pay self-employment tax on your profit, currently at 15.3%.

If you incorporate your business, only the salary you pay yourself is subject to self-employment tax. Depending on your situation, you may be able to save as much as 50% on your tax bill.

Reduce audit risk

Sole proprietors tend to be more likely to file incorrect returns (many are self-prepared), and tend to underreport revenue or overreport deductions.

For these reasons, the IRS has audited a much higher percentage of sole proprietor tax filings than corporate filings in recent years.

In tax year 2006, a Schedule C filer stood a 1 in 32 chance of being audited. For nonbusiness filers, the odds were around 1 in 124.

This means that sole proprietors are significantly more likely to be audited.

Establish credibility with customers

Distinguishing yourself from the competition by establishing a professional identity helps increase credibility with your customers.

Most businesses choose to incorporate to prove their legitimacy to both customers and suppliers. Adding "INC." or "LLC" after your business name gives you the credibility and professionalism that many customers are looking for.

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