The ABC's of starting your first LLC from a Tampa Accountant!
Updated: Sep 19
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So what is an LLC?
And LLC is a limited liability company that is set up for the purpose of structuring and housing your business activity in order to separate legally, your liabilities and assets from your business and your personal side. In short, if you own say a rental property, putting your asset (the property) under the LLC vs leaving it under your SSN, shifts the liability from you to your business. So in the event that a tenant sues the property, they can only go after assets housed in your LLC (like the property) and not assets owner by you individually (like your personal residence or retirement assets). This is especially important to consider when you think about whether to house multiple properties or business lines under a single LLC.
Now that I know what an LLC is and why I need it, how does it get reported on my taxes?
Great question! For simplicity, we will assume you’re a solopreneur with a booming e-commerce business. You’re the sole owner of the LLC, you’ve been growing your online store, and you make a $25,000 profit. In this scenario, you’d report your LLC’s share of income and expenses on Form Schedule C on your 1040. From there, self-employment taxes are assessed on your profit (whether you distributed the profits or not) (SE Taxes in this scenario would be around $4,300 for a Single Filer). So with a single-member LLC, all taxable activity on the business and personal side get reported on your 1040, but the Schedule C is where you detail out your business income and all associated expenses to drill down to your taxable profit.
Although you can file Forms 1040 and Schedule C via TurboTax and cheaper alternatives to an Accountant in Tampa such as H&R Block, it’s important tp weigh the pros and cons of missing deductions by self-filing and/or hiring inexperienced Tampa Tax Preparers like H&R Block who aren’t as well versed in LLC’s and business entities. Contact us today to go over our tax services and your tax questions via a free tax consultation! Our Tampa Tax Accountants can't wait to meet you and learn more about your personal and business goals.
Do I need to file state taxes in Florida?
Nope! Unless you’re forming a C-Corporation, Individuals/S-Corporations/Single-Member LLCs don’t file any state income tax returns with Florida because there is no state income tax rate. However, if you’re in certain industries like e-commerce, you’ll still need to file and remit sales tax to the State of Florida. There are many different types of business taxes in Florida that are not income tax, but it’s important to consult with your Tampa Accountant and Tampa Accounting Firm to verify if you qualify for those.
Interested in how different types of entities get taxed? Click here!
Would an S-Corporation save me more on taxes?
This is arguably one of the most important questions you can ask because the difference between leaving your LLC as a sole proprietorship and converting to an S-Corporation can mean thousands and thousands of dollars in taxes. For simplicity, below are a few figures based on net earnings, and the taxes paid by both types of entities so you can see when it's optimal to convert.
Net Earnings of $25,000: LLC pays $4,300, S-Corp pays $900 ($4k difference)
Net Earnings of $50,000: LLC pays $10k, S-Corp pays $3k ($7k difference)
Net Earnings of $100,000: LLC pays $24k, S-Corp pays $11k ($13k difference)
As you can see, the more you make, the higher the difference in taxes paid vs taxes saved if you remain a sole proprietorship. This is because of 2 things: (1) The IRS incentivizes becoming an S-Corporation so that shareholders get on a reasonable/formal salary (think W2), (2) Second, sole-proprietorships were more designed for hobby income vs trades and businesses.
Contact us today to go over our tax services and your tax questions via a free tax consultation! Our Tampa Tax Accountants can't wait to meet you and learn more about your personal and business goals.
Why Work With Taxes Tampa?
For over a decade, Taxes Tampa has sought out to be a communication-focused Tampa Accounting firm. We don’t operate on a volume-based business model which allows us to check in with our clients more than the average accountant in Tampa and offer our clients a more hands-on and advisory tax experience. We want to ensure you understand the ABC’s of LLC’s, Taxes, and everything in between. Contact us today for a free tax consultation with one of our Tax Accountants!
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