LLC stands for Limited Liability Company. An LLC is a form of business enterprise that includes various fundamentals of partnership and corporation. Business may be done in partnership or a single person can become the owner. It has characteristics of partnership like pass through income taxation which means income of the business is only taxed at one level. A LLC is not a corporation but LLC shares have limited liabilities like in corporations. LLC accounting is also similar to other business, and is easy to understand. These companies are becoming popular due to their various benefits over corporation or partnership firms.
Owners of Limited Liability Company are called members instead of partners or share holders. The company may have several members, or an individual can handle the business. In case the company is forced into bankruptcy, you will not be personally responsible for any form of liabilities with debts as LLC exists as a separate entity like a corporation. Creditors can be paid off with assets and if assets are not enough to cover all the liabilities and debts even then creditor cannot claim anything from members. There is a flexibility in profit distribution even with more members. LLC businesses have fewer or negligible formalities like meeting and others which are there in corporations. So LLCs are easy to operate as compared to corporations. Administration and paper work will also be less.
An LLC has flexibility of making selection that how they should be taxed as a sole proprietor, partnership, S corporation or C corporation. It is also important for LLC accounting to choose the way you want to be taxed. Generally, if not mentioned, LLCs are taxed as sole proprieties due to which you will avoid paying tax twice. All your profits, expense or losses in business will flow through the firm to the individual members. You will get the benefit of not paying federal income tax. It is very easy to convert your company into an LLC and it will not cost much for you. You will be able to get enough tax benefits as well as liabilities.
There are certain items which can be deducted from an LLC’s taxable income and one can reduce the tax burden on themselves this way. LLCs can get 100 per cent depreciation in the equipment purchase for business within some limited range in a period of time. The contribution made by LLC’s towards the employee retirement plans can be deducted from its taxable income. These contributions may be written off and will be taxed as individual income when the employee dies, becomes disabled or retires from the firm. LLCs can deduct to some extent in their expenses involved in professional education and training for their employees to improve their skills. Moreover, an LLC will get also get tax benefits in the amount they have spent on subscriptions for various professional journals and related publications.
If you have basic knowledge of book keeping and accounting then you can handle the LLC accounting. There are many accounting software which one may opt for according to their requirements. After you have decided and selected your business structure, it will be very easy to set up a chart of account in the software you are using. These charts of accounts are same as of other business including revenue and expense accounts as well as equity of owner and liabilities.