Protection and Taxation
A limited liability company (LLC) protects personal assets. If the business has issues, your personal assets are safe. LLCs prevent double taxation of owners. For tax purposes, the IRS treats an LLC as a pass-through entity. This means LLCs don’t pay taxes on business income. Instead, income and expenses go directly on the member’s tax return. LLC owners are not personally liable for company debts. Setting up an LLC shields assets from business debts and lawsuits. Members manage LLCs jointly. Differing ideas can cause conflict. Another downside is the taxation complexity. Profits can be taxed at corporate and personal levels. Members also owe self-employment tax.
Management and Costs
States regulate LLCs. The main LLC cost is the state filing fee. You can form one yourself or use a service. If an LLC has multiple owners, it’s taxed like a partnership. LLCs allow owners to enjoy corporate advantages while retaining tax benefits.
Pros and Cons
LLCs blend the characteristics of corporations and partnerships. They provide flexibility in management and taxation. Owners choose their tax status but may face challenges such as double taxation and internal disputes.