What Are The Tax Advantages And Disadvantages To Being An LLC?

I looking to start my own LLC and I was wondering what the tax advantages and tax disadvantages are to being an llc?

Answer

The main advantages of the LLC over the corporation are:

1. Pass-through taxation which lets you take a personal tax deduction for the (usual) early losses incurred by a startup.

2. Only a single level of taxation, instead of the corporation’s double tax of corporate income tax + tax on dividends.

Now that a new administration is taxing place, it is likely that the low dividend tax rate of 15% will expire (it was part of the Bush tax cuts), and dividends will be taxed at the highest income tax rates. That would mean a 35% corporate tax + up to a 39.6% dividend if Obama returns rates to pre-Bush (Clinton-era) tax rates.

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