Limited Liability Company (LLC)
Definition
A business structure that provides personal liability protection while offering flexible tax treatment. By default, a single-member LLC is taxed as a sole proprietorship (Schedule C) and a multi-member LLC as a partnership (Form 1065). LLCs can elect to be taxed as an S corp or C corp. LLC members pay self-employment tax on their share of business income unless the LLC elects S corp status. LLCs combine the liability protection of corporations with the simplicity and pass-through taxation of partnerships.
Example
You form a single-member LLC for your freelance business earning $100,000. The income flows to your Schedule C, and you pay both income tax and self-employment tax (15.3%) on the net profit. If you later elect S corp taxation, you can reduce SE tax by splitting income between salary and distributions.
Related Terms
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