Flexibility in how you're taxed
LLCs can elect how they are taxed. This is probably one of the best—but least understood—advantages of forming a LLC. You can decide whether it's better to file your taxes as a "disregarded entity" or to get corporate treatment. A disregarded entity is treated the same as a sole proprietor, so your LLC's income will be treated like personal income. If you choose corporate taxation, your business will be taxed at a lower corporate rate for the first $75,000 of income. Any LLC can choose this tax treatment by filing IRS form 8832. Both of these approaches can have big advantages, depending on how much income you personally want to take and how much you plan to reinvest in your business.
Because everyone's situation is unique, you should consult with a CPA or other tax professional to drill down into your financials so you really understand which option is best for you.
Larger contribution limits
Your LLC allows you to set up both retirement funds and life insurance policies with greater contribution limits so you can set aside money for your future and your family.
Your LLC also allows you to lease your personal assets to your corporation. For example, if you use a home office to run your LLC, the LLC could lease the office from you (the person). By doing so, you'd be able to create a business expense the LLC could write off, while adding more income to your family's bottom line. Keep in mind that these expenses must be legitimate business expenses and you will need to have a formal lease agreement in place.
No matter how you run your business, don't forget that business expenses can be deducted. Most importantly, you can deduct the cost of forming your LLC—so make it a practice to hang on to all your receipts.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.