One of the main tax benefits of an LLC is that it allows you, as a business owner, to avoid being taxed twice for the same income. However, you should consider not only the tax benefits that are involved, but also the ways in which the LLC’s organizational structure will affect your business. As an LLC, your business can receive some of the same liability protections as a Corporation, and generally doesn’t have to meet as many filing requirements.

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How Are LLCs Taxed Differently?

Most Corporations are subject to double taxation, which means that the business’s income will be taxed at corporate tax rates, and then you will be taxed again personally for any income that you bring in for working at the business. This double taxation policy can make Corporations more expensive to operate. The owner or owners of an LLC, on the other hand, are generally only taxed through their personal tax returns and not at the corporate level (this is known as pass-through taxation). This means that an LLC may have a lower tax rate than a Corporation, and is one of the best tax benefits of an LLC.

What Are Other Benefits of an LLC?

In contrast to Sole Proprietorships and Partnerships, which also offer pass-through taxation, an LLC may provide additional liability protection for the owners, without having to form a Corporation that has more filing requirements. This means an LLC may have the lower taxes generally associated with a Sole Proprietorship or Partnership, but the liability protection and certain other benefits of a Corporation. An LLC owner may also benefit from having the ability to customize the company’s management structure, as with a Corporation. For many businesses, this makes an LLC the best of both worlds.

How Does the IRS Treat an LLC?

An LLC is usually treated like a Sole Proprietorship or a Partnership for tax purposes, at least as a default. If you are the sole owner, you are likely to be taxed as a Sole Proprietorship. If you own an LLC with another person, you’ll probably be taxed as a Partnership. But this isn’t always the best option for your business. You can petition the IRS to tax your company in a different way; it’s best to speak with a tax attorney or an accountant to figure out the best option for you.

Should I File as an LLC?

The structure of an LLC can offer you a great deal of flexibility as a business owner. In addition to potentially offering the chance to be taxed at the lower personal tax rate, incorporating as an LLC typically allows business owners to get the liability protection of a Corporation. But there are many factors in choosing a business entity. It’s smart to talk to a lawyer and an accountant to get the full picture on both the tax and legal pros and cons before you incorporate your business. If you're ready to get started, visit our LLC Map for a rundown of everything you’ll need in all fifty states. If you’d like more information about starting a business, be sure to check out our guide.


Get started Start Your LLC Answer some questions. We’ll take care of the rest.

Get started Start Your LLCAnswer some questions. We’ll take care of the rest.