Limited Liability Company (LLC)
The Limited Liability Company (LLC) is commonly used to operate an active business or to hold passive investments. The LLC tends to be the entity of choice among new business owners thanks to its versatility, flexibility, tax benefits, and less complex maintenance requirements. Additionally, thanks to charging order protection, Nevada law provides excellent ownership interest protection for Nevada LLC owners, making a Nevada LLC one of the most desirable LLC choices in the country.
From the perspective of the IRS, the LLC is a business structure allowed by state statute. The IRS does not recognize the LLC as a specific tax classification like it does a sole proprietorship, partnership, or corporation. That means that upon creation of an LLC, the owner must decide how the LLC will be taxed. This is good news for a new business owner. If the owner anticipates losses in the first year as the start-up costs exceed profit, then the LLC can opt to be taxed as a sole-proprietorship or partnership. To a certain extent, the losses will flow through to the owners’ personal income tax return and reduce the owner’s tax liability. Over time, as profits increase, the owner can opt for S-Corporation or C-Corporation tax status and enjoy their respective tax benefits such as employment tax-free distributions and a lower overall tax bracket.