Owners of an LLC choose to reduce their individual self-employment tax burden by electing to have the LLC treated as a corporation for tax purposes. Most LLCs elect classification as an S corporation (under Subchapter S of the Internal Revenue Code) when they want to minimize their owners' self-employment taxes.
Self-employment offers many freedoms and opportunities. But you may be surprised to find that your tax bill will be much higher when you are self-employed. Self-employed people have to pay self-employment taxes, which can be a shock to your budget.
You may be able to reduce the amount of tax you pay by setting up a limited liability company (LLC) or a limited company.
You can deduct (write off) legitimate business expenses from your business income, which can greatly reduce the profits you have to report to the IRS.
Deductible expenses include start-up costs, car and travel expenses, equipment costs and advertising and promotion costs.
Sole proprietors, partners in a general partnership, and members of a limited liability company that is taxed as a disregarded entity must pay self-employment tax.