First, it depends on your business purpose and goals. Becoming an LLC does not decrease the amount of federal taxes you pay! Becoming an S-Corp can, but that is a completely different topic! Here's some general things to think about when deciding whether to become an LLC.

The following are examples of LLC protection (your personal assets will not be affected)

• You default on a loan or credit card that is in the business name

• You default on a contract that is in the business name

• Business fails and you cannot fulfill contractual, debt, rental or other obligations that are in the business name

• Fraud is committed by an employee and you as the owner are unaware

• Bankruptcy of the business

The following examples will still affect your personal assets, even if you are an LLC

• You are sued for civil wrong doing (negligence).

• You are selling counterfeit or trademarked items.

• You defraud or assault a customer.

• You are paying for personal expenses out of your business bank account (the court may say you aren't separating your business expenses and void your protection).

• You don't pay your Federal or State tax liabilities

• The owner commits fraud (not reporting income is an example) or an employee commits fraud and you as the owner are aware.

• You default on a contract, loan, credit, or other obligation and you did not put it in the business name.

The bottom line: An LLC costs more, but can be worthwhile, especially if you have plans to grow your business and hire employees. It's easier if you get it from the beginning before you apply for an EIN, before you open your bank account, and before you establish any credit. Changing everything later is a huge pain...it's like starting over! Don't forget to put assets, credit cards, bank accounts, etc. in the LLC name, not your personal name. I also recommend getting an insurance policy to cover your business assets and a worker's comp policy to cover your employees.

Disclaimer: For legal advice, talk to an attorney that specializes in businesses. Every situation is different. As an EA, I work with sole proprietors, LLCs, and S-Corps and help them to understand the tax advantages of each in order to maximize deductions and make the best financial decisions for their businesses. Being an LLC or S-corp isn't for everyone and that's completely okay!