The key reason to form an LLC (limited liability company) is to shield the personal assets of the owners from that of the business. This means that if your company has bad debts or is sued, banks and other lenders cannot seize your personal property. But let’s face it. For many small business owners, questions about forming an LLC typically boil down to a single topic … taxes.

Whether it’s driven by a desire to escape self-employment taxes or looking to avoid that “double taxation” whammy, small business owners ponder which legal structure is right for their business and financial situation.

The LLC is often associated with “pass-through taxation,” meaning the LLC itself does not pay taxes. Rather, income from the business is passed to the company’s owners (aka members) who then claim these profits on their personal tax forms.

However, the LLC actually offers flexibility when it comes to federal tax treatment. This is because the LLC is an entity created by state statute. The IRS allows the LLC to be taxed as a corporation, partnership or sole proprietor, depending on elections made by the LLC and the number of members.

Under federal law, an LLC is classified as one of these types of taxable entities:

Single-member LLC as a “disregarded entity”

In this case, you’re the sole owner of the LLC and you report business income on your Schedule C tax form, as well as pay self-employment tax on the profit on the Schedule SE form. This is what’s typically called pass-through taxation, as the LLC does not need to file any tax forms. You will only need to pay self-employment taxes if you are engaged in an active trade or business; for example, if you provide a service to clients or sell a product. If you formed an LLC for a passive activity, like real estate investments, you will not have to pay self-employment tax on the profits (and in that case, you’d report your passive profits on Schedule E).

For example, Anne is a wedding photographer and formed an LLC for her business. The LLC earned $42,000 in profit this year. She will pay taxes on this $42,000 at her individual tax rate, as well as pay self-employment taxes (currently 13.3 percent for the calendar year 2011 for the first $106,800).

Multiple-member LLC as a partnership

With this arrangement, there are multiple members who own the LLC as partners. Unlike the single-member LLC described above, in this case, the multiple-member LLC reports its business income on a separate 1065 partnership tax return. Then, each partner pays self-employment taxes on their share of the partnership profit on the Schedule SE tax form. As with the single-member LLC, self-employment taxes only need to be paid if the LLC engages in an active trade or business.

LLC as a C corporation

An LLC can elect to be treated as a corporation for tax purposes by filing Form 8832 with the IRS. In this case, the LLC files a corporate tax return 1120. And the LLC profits are not subject to self-employment taxes. However, if the LLC profits are distributed to LLC owners in the form of dividends, those dividends are taxed again at the 15 percent qualifying dividend rate. The LLC treated as a C corporation is also responsible for payroll taxes on any wages paid to LLC members who work in the business.

For example, Paul owns a consulting company which earned $80,000 in profit. As a C corporation, the business would pay $27,200 in taxes on this income (assuming a 34 perent tax rate). If Paul then takes home that profit as a dividend, he would also owe taxes (at the 15 percent qualifying dividend rate) on the dividend payment.

LLC as an S corporation

In this case, the LLC elects to be treated as an S corporation. The S corp files an 1120S tax return, but the company’s profits are not subject to corporate income tax (like they are in the C corporation). Instead, individual LLC owners are taxed on their respective shares of the company’s profits (and profits are not subject to self-employment tax). If an LLC owner works in the business, they must be paid a reasonable wage for their activities and the LLC must pay payroll taxes on these wages.

Let’s say three sisters started an organic ice cream business and each own one-third of the business. They form an LLC and elect to be taxed as an S corporation. In the first year, their business earns $90,000 in profit. The ice cream business does not pay income tax on the profit. Instead, each sister includes her share of the profit ($30,000) in her taxable income on her individual tax return. And if their business lost $45,000 in the first year, each sister would include a $15,000 loss in her individual taxable income.

Choosing the right tax entity for your LLC is a weighty issue and will ultimately depend on all the unique aspects of your particular business needs, vision and circumstances. Investigate your options and stay on top of changing tax developments on both the federal and state levels that could affect your taxes.

Most importantly, know that the LLC is great for small business owners who want liability protection, but would prefer minimal formality (and paperwork). It’s also a perfect structure for a business with foreign owners, as anyone (C corp, S corp, another LLC, trust or estate) can be an owner of an LLC. So take some time and educate yourself on the benefits of forming an LLC and what tax treatment is best for you. After all, both you and your business are worth it.

Image from Pixelbliss/Shutterstock

About the Author

Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner.

We recently found this article on Pinterest.com and have re-posted it,  not to be a scare monger, but to inform our readers as a reminder that there are dangerous people in this world.  In the Atlanta area, we have many attacks on women daily and most go unreported to the news media.  We want to help you stay safe, especially with the holidays and lots of shopping at malls.

(PLEASE TAKE TIME TO READ THIS. It may save a life.)

It seems that alot of attackers use some tactic to get away with violence.  Not many people know how to take care of themselves when faced with such a situation.  Everyone should read this especially each n every girl in this world.  THOUGHT THIS WAS GOOD INFO TO PASS ALONG… FYI - Through a rapist’s eyes!

A group of rapists and date rapists in prison were interviewed on what they look for in a potential victim and here are some interesting facts:

1] The first thing men look for in a potential victim is hairstyle. They are most likely to go after a woman with a ponytail, bun! , braid, or other hairstyle that can easily be grabbed. They are also likely to go after a woman with long hair. Women with short hair are not common targets.

2] The second thing men look for is clothing. They will look for women who’s clothing is easy to remove quickly. Many of them carry scissors around to cut clothing.

3] They also look for women using their cell phone, searching through their purse or doing other activities while walking because they are off guard and can be easily overpowered.

4] The number one place women are abducted from / attacked at is grocery store and mall parking lots.

5] Number two is office parking lots/garages.

6] Number three is public restrooms.

7] The thing about these men is that they are looking to grab a woman and quickly move her to a second location where they don’t have to worry about getting caught.

8] If you put up any kind of a fight at all, they get discouraged because it only takes a minute or two for them to realize that going after you isn’t worth it because it will be time-consuming and might attract too much attention.

9] These men said they would not pick on women who have umbrellas, or other similar objects in their hands, that can be used from a distance.

10] Keys are not a deterrent because you have to get really close to the attacker to use them as a weapon. So, the idea is to convince these guys you’re not worth it.

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POINTS THAT WE SHOULD REMEMBER:

1] If someone is following behind you on a street or in a garage or with you in an elevator or stairwell, look them in the face and ask them a question, like what time is it, or make general small talk: can’t believe it is so cold out here, we’re in for a bad winter. Now that you’ve seen their faces and could identify them in a line- up, you lose appeal as a target.

2] If someone is coming toward you, hold out your hands in front of you and yell Stop or Stay back! Most of the rapists this man talked to said they’d leave a woman alone if she yelled or showed that she would not be afraid to fight back. Again, they are looking for an EASY target.

3] If you carry pepper spray (this instructor was a huge advocate of it and carries it with him wherever he goes,) yelling I HAVE PEPPER SPRAY and holding it out will be a deterrent.

4] If someone grabs you, you can’t beat them with strength but you can do it by outsmarting them. If you are grabbed around the waist from behind, pinch the attacker either under the arm between the elbow and armpit or in the upper inner thigh - HARD. One woman in a class this guy taught told him she used the underarm pinch on a guy who was trying to date rape her and was so upset she broke through the skin and tore out muscle strands the guy needed stitches. Try pinching yourself in those places as hard as you can stand it; it really hurts.

5] After the initial hit, always go for the groin. I know from a particularly unfortunate experience that if you slap a guy’s parts it is extremely painful. You might think that you’ll anger the guy and make him want to hurt you more, but the thing these rapists told our instructor is that they want a woman who will not cause him a lot of trouble. Start causing trouble, and he’s out of there.

6] When the guy puts his hands up to you, grab his first two fingers and bend them back as far as possible with as much pressure pushing down on them as possible. The instructor did it to me without using much pressure, and I ended up on my knees and both knuckles cracked audibly.

7] Of course the things we always hear still apply.  Always be aware of your surroundings, take someone with you if you can and if you see any odd behavior, don’t dismiss it, go with your instincts. You may feel little silly at the time, but you’d feel much worse if the guy really was trouble.

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FINALLY, PLEASE REMEMBER THESE AS WELL:

I know you are smart enough to know these pointers but there will be some, where you will go “hmm I must remember that” After reading forward it to someone you care about, never hurts to be careful in this crazy world we live in.

1. Tip from Tae Kwon Do: The elbow is the strongest point on your body. If you are close enough to use it, do it.

2. Learned this from a tourist guide to New Orleans : if a robber asks for your wallet and/or purse, DO NOT HAND IT TO HIM. Toss it away from you…. chances are that he is more interested in your wallet and/or purse than you and he will go for the wallet/purse. RUN LIKE MAD IN THE OTHER DIRECTION!

3. If you are ever thrown into the trunk of a car: Kick out the back tail lights and stick your arm out the hole and start waving like crazy. The driver won’t see you but everybody else will. This has saved lives.  Also most modern cars have an emergency trunk release for you to escape with. make sure you at least know how your own trunk release works.

4. Women have a tendency to get into their cars after shopping, eating, working, etc., and just sit (doing their checkbook, or making a list, etc. DON’T DO THIS! The predator will be watching you, and this is the perfect opportunity for him to get in on the passenger side, put a gun to your head, and tell you where to go. AS SOON AS YOU CLOSE the DOORS,  LOCK THEM and  LEAVE.

5. A few notes about getting into your car in a parking lot, or parking garage:

a. Be aware: look around your car as someone may be hiding at the passenger side , peek into your car, inside the passenger side floor, and in the back seat. ( DO THIS TOO BEFORE RIDING A TAXI CAB) .

b. If you are parked next to a big van, enter your car from the passenger door. Most serial killers attack their victims by pulling them into their vans while the women are attempting to get into their cars.

c. Look at the car parked on the driver’s side of your vehicle, and the passenger side. If a male is sitting alone in the seat nearest your car, you may want to walk back into the mall, or work, and get a guard/policeman to walk you back out.  IT IS ALWAYS BETTER TO BE SAFE THAN SORRY. (And better paranoid than dead.)

6. ALWAYS take the elevator instead of the stairs. (Stairwells are horrible places to be alone and the perfect crime spot).

7. If the predator has a gun and you are not under his control, ALWAYS RUN!  The predator will only hit you (a running target) 4 in 100 times; And even then, it most likely WILL NOT be a vital organ. RUN!

8. As women, we are always trying to be sympathetic: STOP IT! It may get you raped, or killed. Ted Bundy, the serial killer, was a good-looking, well educated man, who ALWAYS played on the sympathies of unsuspecting women. He walked with a cane, or a limp, and often asked “for help” into his vehicle or with his vehicle, which is when he abducted his next victim.

Send this to any woman you know that may need to be reminded that the world we live in has a lot of crazies in it and it’s better safe than sorry. If u have a heart or compassion reblog this post. ‘Helping hands are better than Praying Lips’ – give us your helping hand. LET EVERY GIRL KNOW. Your one reblog can help to spread this information. Usually we don’t do this, but we care a LOT for our followers and don’t want to see them hurt in any way.