What is a Limited Liability Company (LLC)

What is an LLC? The LLC is still relatively new. One must remember that its not a federal tax entity but a legal business structure, set up under the laws of each state, therefore tax and legal treatment may vary from state to state. It is wise to consult an attorney familiar with LLC structure. If you are not the only owner of the business, a multiple member LLC offers many advantages. An LLC has liability protection similar to that of a corporation. You are not personally liable for the debts or liabilities of the LLC. A one person LLC can be structured as asole proprietorship for tax purposes. If its a multiple member LLC, you may choose either a partnership, S corp, or a C corp.

1. There is limited liability to you personally, which means you ae personally protected from any liability of the LLC.
2. Losses pass through your personal income tax return, which may offset your other taxable income.
3. With LLC 1, you may deduct 100% of health insurance premiums.
4. You may pay yourself by writing a check whenever money is needed, eliminating a need for payroll check.
5. In some cases you may elect your LLC to be taxed as an S or C corporation.

An LLC can be easily and quickly set up through your state's "department of state", online. One may choose to have their LLC taxed as either an S or C corporation, this would create tax savings from the tax rate applicable to the corporate tax structure. If one would like each member's pro rata share of profits to flow through to the member's personal tax return to be taxed on their personal tax rate, exempting them from 15.3 % social security and medicare tax, an S corp. would be a wise choice. If one would like profits taxed at the corporate tax rate, possibly lowering member's personal tax rate, and gaining profits exempt from 51.3 % social security and medicare tax, a C corp. would be a good decision.

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