LLCs are an increasingly popular business structure. They are the fastest growing business structure in the U.S., with many small businesses opting to go for them. There are so many advantages of forming an LLC, particularly in Florida, and some of these include pass-through taxation, limited liability, more management flexibility and overall less restrictions on things you can do. They make your whole business seem much more formal, and are not expensive at all.
How are LLCs taxed?
In general, LLCs are formed like another type of business structure. If you’re a one member LLC, you will be taxed like a sole proprietorship, or if you’re a multi-member LLC, you’ll be taxed as a partnership. LLCs do, however, have the option to be taxed as a corporation, either an S corporation or a C corporation, if the members vote to have this done.
Florida is well-known for its low unemployment rates, expanding the labour force at more than double the national rate right now, and businesses pay less here in taxes than perhaps anywhere else in the U.S.
Incorporating your LLC
Often small businesses start off with an LLC because it’s an easier business structure to maintain as well as being fast and cheaper. But later on, a business might want to incorporate into a C corporation, for reasons like having an unlimited lifestyle, raising investment capital, or wanting to be able to transfer shares. When the business becomes a corporation it’s susceptible to more: the state income tax becomes 5.5% or the 3.3% minimum tax.
Federal income taxes for LLCs
If your LLC is taxed like a C or an S corporation, it’s treated as a corporation so the members are considered employees, if they perform any type of services for the business. Each member who does so has to report, for the state’s Employer’s Quarterly Report.
If your LLC is taxed like a partnership, members aren’t considered employees in Florida, so wages aren’t taxed by the state. But if the LLC does have employees, it has to pay state wage tax.
If your LLC is taxed like a sole proprietorship, it receives the same treatment as an LLC treated as a partnership, at the federal level.
State income taxes
In Florida, the only businesses that pay state income taxes are C corporations. S corporations, LLCs, partnerships and sole proprietorships – none of these pay state income taxes. Moreover, individuals in Florida themselves are not subject to state income taxes – which means a business owner isn’t taxed on income that passes through from his business to himself.
If you choose to be taxed like an S corporation at federal level, you’ll also be subject to state income tax – per the Florida Income Tax Code. This also applies to LLCs that are classified as partnerships that have at least one corporate owner.
But, this rule doesn’t apply to single-member LLCs. Single-member LLCs are treated as disregarded entities (separate from the business owner for tax purposes). Incomes and losses are only reported on the owner’s individual income tax return.
Corporate income/franchise tax
All businesses in Florida that conduct business, exist within, or receive income from Florida, are required to pay the state’s corporate income/franchise tax. This tax is adjusted depending on the percentage of business that you conduct in Florida in comparison to other states, and it considers things like how much the company earns, their payroll, property and assets of the company.
If you do business outside of Florida too, your federal income is found by using a weighted average formula: this divides up and shares out 50% to sales, and 25% each to payroll and property. Tax rate on this is 5.5%.
It’s also useful to keep in mind that you can receive tax credits for providing salaries to Florida residents, by paying other taxes and assessments, and making some types of investments into your business.
While LLCs aren’t completely tax exempt, there are many ways to get by, and the taxing in Florida is certainly much cheaper than so many other states.
TRUiC has a lot of information on how to form LLCs in Florida with advice. Read more here.