Regardless, there are plenty of tax and non-tax reasons to do or not do an LLC.  Here are 5 signs that you need an LLC, or something just like it (like its big brother the S-corporation):

1.   You have an employee . Jet skis, boat, CDs, retirement account, and all of your other toys and savings are currently exposed to huge liability if you are hiring an employee in your own individual capacity.  If you are running a business that employs people, and it is a sole proprietorship, all of your personal holdings are exposed to all of the negligent acts of your employee that they undertake  during the scope and course of their employment.  Send an employee after supplies, and they hit someone while texting on their phone–tag, you’re it.  You get to find out if you had enough insurance to keep your jet skis, boat, CDs, retirement account and other personal holdings. With an LLC (or other business entity), you could have  trapped all of that liability inside of the LLC.

2. You Own a Business with Someone Other than your Spouse . If you own a business with someone other than your spouse, get an entity.  Unless you have a “partnership account”, you are splitting bills out of each of your accounts, as they come in.  Then, you are turning around and trying to split income between the two accounts. Take the income, put it into one account, pay all the bills, and then split any leftover income. If you’re short, each member loans money to the entity, and it is properly documented.  An LLC will clean things up dramatically for the messiest of business relations. A simple year-end entity tax return will have you asking why you didn’t do this sooner.

3. You Own Rental Property .  In addition to a good lease agreement and lots of insurance, an LLC is a great addition to your leasing business tools. When you lease real estate, whether it be commercial, agricultural, or residential, you are inviting people onto your land. With guests, comes risk. The list of things that could happen while someone is an invited guest onto your rental property is a mile long. Suffice it to say that if you have an LLC, you limit your potential exposure to just the asset or assets contained inside the LLC.

4.  You are Paying a Lot of Self-Employment Tax.  This blog article is no substitute for good tax advice. And we are not offering any tax advice. That said, here is a tax concept for you to consider.  The self-employment tax eats roughly 15% of every self-employed person’s lunch.  This is a tax on active income.  The self-employment tax  is the employer portion of Medicare and Social Security taxes that self-employed people must pay. Everyone who works must pay these taxes, which for 2016 are 7.65% for employees and 15.30% for the self-employed.  How do you reduce this?  Convert your  active income to  passive income.  What is passive income?  Examples would be dividends,  rent , or interest income. Passive income (confirm this with your tax advisor) is not subject to the self-employment tax. So how does this work, in practice? Take your real estate that you are running a business on (agricultural, commercial activity, etc.,) and place it into an LLC.  Then, begin making rent check payments to your LLC from your commercial activity. The inverse of this would be to place the commercial activity into a business entity, but that is for a closer examination of your situation. Regardless, separate the business activity from the premises owning activity (land or commercial property) and begin paying rent .  But remember, rent must be fair and reasonable.  Moreover, all of what I am saying here is subject to you obtaining good sound tax advice.

5.  You Own Real Estate Out-of-State.  When you die, your estate may need probated. This is especially likely if you own real estate. Probate is nothing more than the process of re-titling assets from a decedent’s estate, to their rightful beneficiaries. It is true that probate can be expensive.  What is more true, however, is that two probates can be twice as expensive.  If you own real estate in two different states, then you are inviting probate in two different states, because the real estate will need re-titled in each state to the correct heir(s). The solution is an LLC.  If you own real estate out-of-state, and you place that into an LLC, then upon your death the LLC is probated once in the state where you lived, regardless of where the other land that is located, that is placed inside of the LLC. HOWEVER, a word to the wise: you may be inviting an unwanted inheritance tax if you are taking real estate from a non-inheritance tax state and transferring it into a state with inheritance tax.  But, with the low rates of inheritance tax (as low as 1% for most estates in Nebraska), it may still be cheaper than paying for two probates.  This is best analyzed during an in-depth conversation with your planning professionals.

Notably, there are countless other reasons as to why an LLC can be a valuable tool.  From helping reduce your Federal Estate Tax exposure to keeping the family ranch as a cohesive unit for the next generation, this can be an amazing planning tool.

An LLC is not as expensive as you think. Get started today by entering your information at the section where we will give you a no-charge, no hassle analysis of and opinion as to whether or not you could benefit from an LLC.