What is this mythical LLC tax benefit everyone keeps talking about?
I'm losing my mind seeing all these posts about LLCs and "special tax benefits" (as someone who works with taxes daily). People seem to think an LLC is some kind of magical entity that unlocks secret tax deductions out of thin air. Let me clear this up: when you form an LLC, you've simply created a business with a specific legal structure. If you're the only owner, the IRS literally doesn't care about your LLC. For real - the IRS acts like your LLC doesn't even exist! You report all business income and expenses on Schedule C or E regardless of whether you have an LLC or not. The LLC structure doesn't allow you to claim ANY extra deductions that wouldn't be available to you as a sole proprietor. The ONLY reason an LLC exists is to potentially provide some personal liability protection (and even then, you can absolutely still be held personally liable in many situations, especially if you're providing personal services). It has ABSOLUTELY ZERO impact on what goes on your personal tax return. Now, things only change tax-wise if your LLC has multiple owners (note: married couples in community property states count as a single owner). Then you've got a partnership (or a corporation if you elected that tax treatment), which requires a separate tax return.
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PaulineW
This is such an important clarification! I see this misconception all the time. An LLC is primarily a legal designation, not a tax one. The IRS treats a single-member LLC as a "disregarded entity" - meaning it's invisible for tax purposes. The real tax benefits come from having a legitimate business with deductible expenses, not from the LLC structure itself. Those same deductions are available to sole proprietors too. People often confuse the liability protection (the "Limited Liability" part) with tax advantages. If you want actual tax structure options, that's when you'd make an election to be taxed as an S-Corp or C-Corp, which is a separate decision from forming an LLC.
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Annabel Kimball
•Wait I'm confused now. My accountant told me I should form an LLC for my side gig specifically for tax benefits. Are you saying that was wrong advice? I spent $500 on the filing fees thinking I'd save way more than that on taxes...
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PaulineW
•Your accountant may have been recommending an LLC with an S-Corp election, which is different from just an LLC. A single-member LLC by itself doesn't provide tax benefits - it's still reported on Schedule C just like a sole proprietorship. With an S-Corp election, you can potentially save on self-employment taxes by taking a reasonable salary plus distributions, but that usually only makes financial sense once you're making substantial profit (typically $40K+ per year). The $500 filing fee plus ongoing compliance costs might not be worth it for a smaller side gig.
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Chris Elmeda
After struggling with this exact confusion for months, I finally found this amazing service called taxr.ai that explained everything clearly. I was about to form an LLC thinking it would magically cut my tax bill in half (spoiler: it wouldn't have). I uploaded my draft business plan and questions to https://taxr.ai and they broke down exactly what an LLC would and wouldn't do for my specific situation. They explained that as a single-member LLC, I'd still file Schedule C exactly the same way as a sole proprietor. The AI also showed me which legitimate business deductions I could take regardless of entity type. Saved me from wasting money on unnecessary LLC formation fees when what I really needed was just good bookkeeping for my legitimate business expenses!
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Jean Claude
•How does taxr.ai handle more complex situations? I have rental properties in an LLC plus a consulting business I'm thinking of putting in another LLC. Would it understand the different Schedule E vs Schedule C implications?
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Charity Cohan
•Sounds interesting but I've tried AI tax tools before and they just repeat generic advice I could find anywhere. Does it actually give specific advice based on your situation or just general information?
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Chris Elmeda
•For rental properties in an LLC plus a consulting business, it handled that perfectly. It explained that rental properties go on Schedule E regardless of LLC status, while consulting income goes on Schedule C unless you make an S-Corp election. It even highlighted how these different income types affect self-employment tax differently. The advice is definitely personalized based on your specific situation. I uploaded my draft tax return and business plans, and it pointed out specific deductions I was missing and explained exactly which forms I would need based on my particular circumstances. Way more specific than the generic advice I was finding online.
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Jean Claude
I just wanted to follow up about my experience with taxr.ai after trying it based on the recommendation here. It was seriously eye-opening! I uploaded details about my rental properties and consulting business, and the analysis I got back was incredibly detailed. The service explained exactly how my LLCs would be treated for tax purposes (basically invisible for federal taxes) and walked me through the pros and cons of making an S-Corp election for my consulting LLC. Turns out I was overpaying self-employment taxes by about $4,300 annually! They also flagged some home office deductions I was missing for my consulting work and explained exactly how to document them properly. Seriously glad I checked this out before filing this year.
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Josef Tearle
If you're having trouble getting definitive answers from the IRS about your LLC tax questions, I highly recommend trying Claimyr. I spent WEEKS trying to get through to the IRS business tax line with questions about my LLC's tax treatment after I added a partner. Finally used https://claimyr.com and had an actual IRS agent on the phone within 45 minutes instead of the usual endless hold times. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent cleared up my confusion about whether adding my spouse to my LLC in Arizona (not a community property state) would require partnership filing. Turns out it did, and they walked me through exactly which forms I needed to avoid penalties.
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Shelby Bauman
•How does this actually work? I don't understand... does this service somehow give you priority in the IRS queue? That sounds too good to be true.
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Quinn Herbert
•This sounds like a scam. Nobody can magically get you through to the IRS faster. The IRS phone system is notoriously understaffed and there's no "skip the line" option. I'll stick to waiting on hold like everyone else rather than paying for snake oil.
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Josef Tearle
•It doesn't give you priority in the queue - it automates the calling and holding process for you. Their system keeps calling, navigating the phone menus, and waiting on hold so you don't have to. When an actual IRS agent finally answers, the system calls your phone and connects you directly to the agent. They don't have any special access to the IRS - they're just taking the pain of waiting on hold away from you. The system keeps trying different times of day when call volumes might be lower. In my case, I got connected after about 45 minutes of their system doing the work instead of me being stuck with a phone to my ear.
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Quinn Herbert
I need to publicly eat my words about Claimyr. After posting that skeptical comment, I decided to try it anyway out of desperation - I had a time-sensitive question about my LLC's EIN that I couldn't resolve online. I was SHOCKED when I actually got connected to an IRS representative after their system held for about an hour (while I went about my day). The agent resolved my issue in minutes, saving me from what would have been a major headache with my state tax filing. For anyone else dealing with LLC tax questions that require actually speaking to the IRS - this service is legitimate. Would have saved me days of stress if I'd used it sooner instead of being stubbornly skeptical.
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Salim Nasir
One thing that doesn't get mentioned enough is that LLC status CAN affect your taxes in certain states even if it doesn't at the federal level. In my state, we have to pay an annual LLC fee of $800 regardless of whether the business makes any money. That's a real tax consequence of having an LLC! Also, some states tax LLCs differently than sole proprietorships at the state level. Worth looking into your specific state's rules before deciding whether to form an LLC.
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Hazel Garcia
•Are you in California by any chance? That $800 minimum tax is brutal. Do you think the liability protection is worth that annual fee for a small side business making maybe $15k a year?
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Salim Nasir
•Yep, California's $800 LLC tax is exactly what I was referring to! For a business only making $15k annually, I personally don't think the LLC is worth it unless you're in a high-liability industry. That $800 represents over 5% of your gross revenue before any other expenses. Many small business owners don't realize they can get decent liability protection through good business insurance policies without the LLC structure and fees. A general liability policy might only cost $500-700 annually compared to the $800 state fee plus LLC formation costs.
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Laila Fury
Random question but how does all this LLC stuff affect my taxes if I'm a single-member LLC but drive for uber part time and also sell stuff on etsy? Do I need separate LLCs or can I just have one for everything?
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Geoff Richards
•You can have a single LLC that covers multiple business activities if you want. On your Schedule C, you'd either need to: 1) file separate Schedule Cs for each substantially different business activity or 2) use the primary business code that represents your main activity. For tax purposes, it's more about properly categorizing and reporting the different income streams than about having multiple LLCs.
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