The best way to grow your personal wealth hands down is to start your own business. After all, we’ve all heard the old saying that you will never get rich working for someone else… If you are ready to start your own business or your currently run your own startup side business, then this article is for you. Here, we will cover the top 3 reasons you should form an LLC for your business.
Limited Liability Protection
For me, this is far and away the most important reason of all to form an LLC for your startup business. LLC stands for limited liability corporation. The limited liability portion is the part we are after :-). This basically means that we form a virtual “wall” or “veil” between you as a person and your business. If your business gets sued (for whatever crazy reason), this ensures that people cannot come after your personal assets like your car, home, etc. It also works the other way! If someone decides to sue you personally, it protects your business assets like computers, office equipment, etc.
In the overly litigious society we find ourselves in, you’d have to be practically crazy not to spend a few bucks to grant yourself this protection! This form of protection will also protect your personal assets if your new company goes bankrupt. Small startup businesses can be particularly vulnerable to bankruptcy, so it’s also a nice feature to have.
Single Taxation and Tax Deductions
If you are making money on the side with one of your hobbies, you are expected to report this extra income to the IRS. Many folks don’t report this “under the table income,” but that can be risky. There are pretty hefty fines if you get caught. It is much better to operate above board with your finances. If you form an LLC, one great thing is that you can deduct your expenses from your total business income so that you only pay taxes on the actual profit. This can be a great method to lower your business’ taxes each year.
One other side benefit of LLCs is that the money is only taxed once. It’s called “pass-through” taxation. What this means is that you the income and expenses of your business straight on your 1040 come tax time. For corporations, they can usually end up paying tax twice. Once on the profits generated, then again with the distributions if they take the form of dividends. It really sucks!
Having the ability to add the “LLC” after your company name brings an amount of authority, legitimacy, and distinction. You will be able to present your startup business professionally and on the same level as much more established companies. Registering as an LLC also ensures that others cannot form a company with a very similar or the exact same name as yours, so your “brand” also gains additional credibility over time.
Top 3 Reasons You Should Form an LLC For Your Business – The Video
If all of this is too long and you don’t feel like reading, then check out my YouTube video where I cover everything above :-).
Top 3 Reasons You Should Form an LLC For Your Business – Final Thoughts
Forming an LLC is the right way to for 95% of small to medium sized businesses. The tax filing and paperwork required for an LLC is an order of magnitude more easy to handle compared to an incorporation. In most states, you can form your LLC for about $200 at the outset and then it is only $50-$100 renewal fee every year thereafter. If you ask me, this is a small price to pay for all the benefits an LLC presents.
If you are ready to start your LLC for your business, head over to my page where I walk you through the entire process of how to form an LLC in less than 6 minutes!