Choosing the right business structure is a critical decision for any business owner. For many small and medium-sized businesses, a limited liability company (LLC) offers significant advantages, blending liability protection with flexible tax treatment.

Liability Protection

One of the main benefits of an LLC is that it protects the personal assets of its owners (known as "members"). Similar to shareholders in a corporation, LLC members are generally not personally liable for the business's debts beyond their investment in the company. This protection extends to personal assets, such as a home or personal savings, which are typically shielded from the company's creditors.

Tax Benefits

Under the IRS's "check-the-box" rules, an LLC can elect to be taxed as a partnership, which offers several benefits:

• Pass-through taxation: LLC income "flows through" to the owners, avoiding the double taxation that applies to corporations. The income is reported on the members' personal tax returns.
• Qualified Business Income (QBI) deduction: If you're eligible, you can claim a deduction for a portion of the LLC's pass-through income, subject to limitations.
• Deductibility of losses: LLC members who actively manage the business can deduct their share of any losses, which can help offset other taxable income.

Flexibility Compared to S Corporations

LLCs offer more flexibility than S corporations. For example, S corporations are limited to 100 shareholders and may only issue one class of stock. In contrast, LLCs can have an unlimited number of members, and ownership interests can be customized.

Consider Your Options

An LLC may provide the liability protection and tax advantages you need to grow your business. However, the rules governing LLCs vary by state. Contact us to discuss whether forming an LLC or another entity type is right for your business.