What is an LLC?
For all the beginners out there trying to change their financial situation, this article is for you. Because of that, I’m going to explain what an LLC is and how to take advantage of it.
In order to answer that question let’s define what it is and what it can do for you. A Limited Liability Company is a type of legal entity that can be formed and operate as a business. It provides the personal liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership. If you are looking for a more textbook definition of what a Limited Liability Company is look here.
Throughout my professional career, I’ve learned a lot about what being wealthy really means. I’ve learned how to really invest and gain wealth. I want to share these thoughts with you guys. There are a lot of good reasons for opening up an LLC. I am going to discuss those reasons as well as what true wealth really is below.
Should I Form an LLC?
So, this is the first question that you need to ask yourself. There are a lot of myths surrounding opening up an LLC. Most people think they need to have a good business idea. Which is kind of true but not really. Let me explain.
In order to open up an LLC, you don’t need to open up a baking shop or a tech company. You honestly could open up an LLC just to house your assets. For instance, if you were to invest in the stock market instead of doing it in your own personal investment account you could open up a bank/investing account under your LLC and invest there.
Building those assets will allow you to have more buying power. Which will allow you to have more access to money. So, the question of should you form an LLC is all dependent on what you have planned for your life. Like are you okay with just living day to day and hoping things will change or do you want to have a plan and grow?
If you said you want a plan and grow, read on. I will more into the advantages of an LLC.
What does having an LLC do for you?
So, now you know what an LLC is and if you should form one. Let’s now discuss what opening up one will do for you. Opening up an LLC and figuring out what to do with it can be a daunting task. But luckily there are many ways to do this. So, let me give you a personal example of what you could do.
So, one of the biggest advantages that an LLC can do for you is well the tax break. An LLC can help you avoid double taxation. Both the corporation and its shareholders pay tax on their income, leading to double taxation. Creating an LLC can make the business and the personal separate. Meaning you only have to pay taxes for your business.
Any members of the organization may take tax deductions for legitimate business expenses, including the cost of forming the LLC, on their personal returns. The deductions, like profits, are divided among owners based on a percentage of ownership. Another essential tax benefit is that LLC owners may also be eligible for the Qualified Business Income deduction. This allows LLC owners to claim a 20% deduction from their business net income, above and beyond business-expense deductions.
What can an LLC be used for?
When I first started my LLC Average Genius. I wasn’t quite sure what I was going to do. I had a few discussions with a CPA friend I realized that I don’t need a product or service, I could just build up my assets through the LLC. So, what I started to do, now 4 years ago, was open up an investment account within the LLC and deposit $1,000/month into the account. I started out investing in S&P 500 indexes and then hit banks (Bank of America, JP Morgan, Wells Fargo, US Bancorp, etc.). After that, I started investing in blueblood stocks like Apple, Microsoft, Walmart, etc.
I spent the next few years just building that asset base up. I built up my assets and then branched out. Started getting into smaller real estate investments and would Airbnb them out. I would take most of the proceeds from that and then use them to invest in the stock market and/or invest in getting a couple of new properties to rent out or Airbnb out. But what’s important here is that I built my wealth through my LLC slowly and methodically. Which is how real wealth is built, over time.
As we close this discussion on why LLCs are important, I want to just say if you are looking to make a change to your financial status it’s going to require some careful planning. Understanding the rule of having money makes money still applies. If you are in a situation where money is tight, you have to make the decision of taking a step back in your standard of living to gain more room. The other option is to find ways to make more money. Either way, it’s going to require some sacrifices.
Having wealth is not for the faint of heart. It takes time, patience, and sacrifice and you are going to have to critically think about what you spend your money on. I hope that with this and the next series of articles I can help you gain more knowledge on the secrets of building wealth. Which can hopefully change your life. Stay hungry!