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What is an LLC and how is it taxed?



LLC stands for Limited Liability Company and is a business entity form that
generally grants protection for the business owner personally from the business’s legal issues. Organizing as an LLC does not replace the need for business insurance.

Interestingly, the Internal Revenue Service does not have a separate tax return form just for LLCs. Instead, every LLC gets to choose how it is taxed.

The four options are Sole Proprietor, Partnership, S corporation or C corporation. By default, a single member LLC will be taxed as a Sole Proprietor and a multi-member LLC will be taxed as a partnership. Any LLC can elect to be taxed as a S corporation or a C corporation by filing a form with the IRS.

The beauty of an LLC is that it can change how it is taxed once every five
years without dissolving.

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