If I had a dollar for every time someone said to me, “I need to set up an LLC. I am making too much money and need to save on taxes,” I would have much more money than you would save in taxes by creating an LLC.
If you are an individual running a business and you form an LLC, it is referred to as a “disregarded entity” for tax purposes. This means that in the eyes of the IRS, as a single-member LLC, you are not viewed any differently than if you were still a sole proprietor – i.e., there is no tax savings. An LLC does, however, provide liability protection, which is a great reason to form one. But if you are forming the LLC just to save on taxes, you are out of luck.
Don’t get me wrong, though, LLCs are still pretty cool. You have the flexibility to elect to be taxed as an S-corporation when you are operating as an LLC, which does have some tax benefits. If you have business partners, an LLC is automatically taxed as a partnership, but you can still also choose to be taxed as an S-corporation in that situation as well.
Regardless of your situation, I recommend consulting with both a CPA and a lawyer before making a decision to form any kind of business entity. While it is fairly easy to file the paperwork to form an LLC, partnership, or corporation, a lawyer can help you make the decision as to which is best for your business from a liability perspective. Your lawyer can also draw up a rock solid operating agreement if you have partners. And a CPA (like me!) can help you decide which entity is best for you based on your tax situation.
If you are starting a business and need help getting set up, please reach out!