Most attorneys recommend a Limited Liability Company (LLC) business structure to their clients because:
- LLCs are relatively simple for you to operate, especially compared to all the red tape involved with operating as a corporation
- An LLC significantly limits your legal liability and protects your personal assets from business clients, prospects, and the public at large who can tend to be lawsuit-happy these days
- LLCs are easy for an attorney to set up and make money on. The paperwork takes about 15 minutes for a paralegal to handle, and the law firm typically charges hundred dollars to do so.
It’s great for the attorney, and it’s great for you in so far as it’s legal protection.
But from the perspective of your tax professional, setting up your business as an LLC has some shortcomings:
- HIGHER TAXES.: “Members” (or owners) of Limited Liability companies are considered “self-employed” when it comes to the income tax code, and self-employment taxes (what you used to call Social Security when you were in employee) are required to be paid on every dollar of net income in your business.
- INCREASED AUDIT RISK: You, the business owner, are more likely to be audited on your individual income tax return, especially if yours is a single-member LLC. How much more likely? 2 to 6 times more!
So basically you’re opening yourself up to higher audit risk, and sharing more of your hard-earned money with the IRS than you really need to be paying.
So what’s the solution?
In many cases the solution is an S corporation entity structure.
S corporation is not a magic bullet. S corporation is not a one-size-fits-all answer. But it may be perfect for your specific situation. For more info, or to learn what are you can benefit from operating as an S Corp, click here.