“Have you heard about this exciting business opportunity? It’s changing lives and NOW is the time to take advantage of it!”
How many times have you said or heard those famous words?
Well, if you are involved in the network marketing industry, I imagine that you’ve heard those words countless times. And guess what? I have an exciting business opportunity that you are not going to want to miss out on! It really will change your life.
The majority of network marketers operate their business as a sole proprietorship. Big mistake! Unfortunately, by doing so, they are exposing their personal assets including their home, personal bank accounts, etc. to lawsuits, judgments, creditors, and tax audits. By taking the simple step of creating an LLC, you can eliminate that risk AND capitalize on the many tax advantages that are not available to sole proprietors.
What Is an LLC?
A limited liability company (“LLC”) is a type of business entity that combines the pass-through taxation of a partnership or sole proprietorship with the liability protection of a corporation. An LLC offers far more flexibility in ownership and management structure than that of a corporation. Additionally, in the majority of states, only one member (owner) is required to form an LLC, making it different than a partnership.
What Are the Advantages of an LLC?
There are two significant advantages to forming an LLC over running your business as a sole proprietorship – Liability Protection, and Tax Reduction.
Liability Protection
By setting up an LLC, you protect your personal assets from business debts, judgments, creditors, and tax audits. This protection is NOT available to you as a sole proprietor.
If your sole proprietor business is sued, a judgment creditor could seek satisfaction of that judgment through various means including placing a lien on your home, freezing your personal bank accounts, garnishing wages, etc.
By setting up an LLC, your personal assets are protected from business debts and other liabilities, meaning the only assets that can be used to satisfy those judgments would be assets of the business, and NOT your personal assets. As a business owner, that liability protection should allow you to sleep much better at night.
Tax Reduction
Unlike shareholders in a corporation, LLC’s are not taxed as separate entities. Instead, profits and losses pass through the LLC to each member. The members then report the profits or losses on their personal tax returns. As a network marketer operating as a sole proprietorship, you pay self-employment tax on the entire amount of your net income. That’s a potentially huge amount depending on the amount of your residual income.
The advantage that an LLC owner has over a sole proprietor is the opportunity to elect to have the LLC taxed as an S Corporation (IRS Form 2553). Once approved, the LLC owner can pay him or herself a reasonable salary, which is subject to self-employment tax. However, the LLC owner can then pay him or herself the remainder of the business profits, which would be taken as a distribution. Any amounts taken as distributions are not subject to self-employment tax.
Other LLC Benefits
Other benefits to an LLC include flexibility of ownership, less administrative requirements and paperwork, increased business credibility, various management structures, and free transferability of interest. For these reasons and many more, LLC’s are generally more preferable than a corporation or partnership, and definitely more preferable than a sole proprietorship.
Conclusion
NOW is the time to set up an LLC to run your network marketing business through. Protect yourself from liability, and take advantage of the tax saving opportunities available to an LLC.
And…don’t forget to tell your friends about this amazing opportunity!
*Disclaimer: The above information is for general informational purposes only, and is not to be construed as legal advice, nor is it intended to create an attorney-client relationship
