When you run a startup, you have a handful of options that you can use to classify your business, including making it a C-Corp, an S-Corp or an LLC–a Limited Liability Corporation. While all situations are different, there are two big reasons why making your startup into an LLC might make the most sense in Colorado.
First of all, you have to remember that man startups actually lose money at first. Meanwhile, your LLC won’t be taxed as a company. You–and any other owners–will be personally taxed. These taxes are usually divided up based on ownership percentages.
Why is this helpful? It means you can put those losses against your personal income on your tax returns, helping to save on what you have to pay. If you own 50 percent of the company and it loses $10,000, that means you have $5,000 to write off.
Another reason this is helpful, from a tax perspective, is that the money will only be taxed one time–when it comes to you. If your business is a standard corporation, the company will first have to pay taxes. The company will then give you paychecks or a salary, as an employee. You’ll have to pay taxes on that income, as well.
This means all of the money ends up getting taxed not once, but twice, before it ever hits your bank account. With an LLC, the taxes are more straightforward and you just get taxed once, meaning it’s ideal for small companies with just a few owners/employees.
When deciding what type of business to form, be sure you really look into all of your options and what they’ll mean financially.
Source: On Startups, “Startup 101 : Should You Form An Inc. or LLC?,” Dharmesh Shah, accessed Dec. 22, 2015