WHAT ARE THE BENEFITS OF FORMING AN LLC FOR A PHOTOGRAPHY BUSINESS?

How to form an LLC and what are the Benefits of an LLC limited liability company?  

How do LLCs are set-up? The LLC allows for multiple owners, called  members. Additionally, there is a managing member, or all members can be managers.  Also, you can hire someone to be the LLC manager.   Members and managers  enjoy the rewards of limited liability and the manager is typically the person responsible for managing the LLC like the president is in a corporation. (However, if the LLC has just one owner, it will be taxed as a sole proprietorship unless you select by filing an IRS form to be treated as a corporation.)

The profits or losses of the LLC pass directly through to the owners' personal income tax returns.  Specifically through your Form 1040. The LLC files an IRS Form 1065.   

Forming an LLC is the most popular way to limit your liability, increase your liability insurance, and possibly limit your taxes. But with the positives with an LLC, comes a lot or responsibilty, so if you get an LLC that you follow all state, local, and federal laws. Pay your taxes on time, to  keep you entity in good standing with the state.

Graphic Design and Photography Design Services: Flyers, brochures, business cards, Invitations (Wedding, Birthdays, and Special events), Business Logos, and Custom Made Greeting Cards, Letterheads, Calendars, Envelopes, Post Cards, booklets, CD Labels Photography Services: Events (Weddings, Birthday Parties, Family Reunions, and Special Events), Portraits, Photo-Shots, Landscapes, Restate Properties for open houses, Photo-editing, Photo-printing, Portfolios, Photo-Webpage Home base business

Forming an LLC
 
 
LLC Advantages

What are the advantages of forming an LLC (limited liability company)?

We talke about LLC advantages in-depth in this article. The conclusion? LLC benefits are tremendous. It's worth taking a thoughtful look at selecting an LLC over a corporation or other business structure such as a sole proprietorship or partnership.    LLC disadvantages will also be discussed and that might discourage you from LLC formation.

The LLC, a relatively new form of state created business organization, is growing in popularity as evident from the increased LLC filings in all 50 states. So what are the LLC advantages that are making it the business structure of choice?

First you need to obtain an LLC and a federal tax ID number.  The LLC comes with a state LLC number and needs the LLC  ID which is a federal tax id.   Even though an LLC formation is a great choice, you still need more.   For your graphic design business,  you are legally required to obtain a graphic design business license for your LLC.   A business license is usually a flat tax assessment and a percentage of your gross income -- as opposed to your income taxes on profit, or taxes on the sales of tangible items. At any rate, it is a required LLC business registration tax that you must register for.

Here is what to avoid double taxation with an LLC means. In a corporation, it works differently. The corporation is taxed as a separate entity from its owners / shareholders and  files its own taxes. Then, distributions  such as salaries to the owners are taxed as well. In essence, the government taxes your revenues instead of just taxing just the corporation.  That does not happen if you form an LLC instead of a corporation.

With an LLC, the net profit of the business is not considered to be member income, and therefore is not subject to self-employment tax as for example in an "S" Corporation, i.e., a small business corporation that is not a publicly traded corporation. However, member's share of the net profit of the LLC is considered earned income, and therefore is subject to self-employment tax as it would be in an "S" Corporation.

Members are paid by either distributions of profit or guaranteed payments.  Here is how a distribution of profit works:  it allows each member to pay themselves by simply writing checks as they see fit.  For example, if  they need any money, they just write a check to themselves so long as there are sufficient funds in the LLC corporate account.  On the other hand, as a member of an LLC, you are not allowed to pay yourself wages unless you make yourself an  employee and the LLC hires you and pays employment taxes and thus you become the employee of the LLC as well as a member.

Guaranteed Payments vs. LLC net profit

Guaranteed payments are just income to the members.  That results in  qualifying them to enjoy the benefits of tax fringe benefits. The members' share of net profit is not considered earned income because the members are considered to be inactive just as shareholders are for corporations.  Thus, if they share LLC net income, they do not also enjoy the fringe benefits.

Another benefit of an LLC is that it can have foreigners as member as well as a corporation can be a member of an LLC.   This is like a loophole that allows you to just form a corporate entity that can offer such traditional fringe benefits as retirement plans and an additional level of corporate protection from liability as well as additional opportunity to incorporate more shareholders that have only the corporate state percentage of the LLC.

The advantages of forming an LLC are that the members have limited liability as they do if they were corporatate shareholders.  There is no difference.   Shareholders in an LLC are members or managers or manager members.   Also, they are like sole proprietors in that members have pass-through taxes similar to a partnership.

By forming an LLC instead of a corporation, you get all the benefits of forming a corporation but you avoid corporate minutes holding each year, having long lists of bylaws and keeping records  of corporate actions.  You would need to do these if you formed a corporation. Specifically, when you form a corporation, you subject yourself to double taxation: i.e., the corporation is taxed on its profits and the money the corporation pays you is taxed as well as personal income not to mention and excessive paperwork for a corporation.   Double taxation and  extra paperwork can be avoided if you form an LLC.

LLC Health Insurance for Its Members

If you decide to be a member AND the manager of your LLC, you can deduct 100 percent of the health insurance premiums.   Also, members that allowed to receive earned income are allowed to deduct the full health insurance premium.

What are teh Disadvantages to an LLC?

So, you may ask, if an LLC is the best, why corporations switch to LLC status? Why areC corporations and S corporations still being formed?

First, if you are looking for investors, and you will be offering stock options to employees, a corporation is better. Many  venture capital firms are still reluctant about investing in LLCs because it's a new business formation that is not well understood as it is still kind of organic, i.e., the state laws about LLCs are still forming and are frequently are changing.