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One of the greatest benefits of forming a limited liability corporation is your business won't be subject to double taxation, unless you elect to be taxed as a C-corporation.
In a corporation, double taxation refers to the tax placed on corporate profits. These proceeds are taxed a second time on the shareholder's personal tax return.
If you elect to form a C-corporation, you can avoid double taxation by leaving your profits in the business in lieu of distributing dividends. Your other option is to receive a salary or other fringe benefits, which are taxed on your individual tax return. -
When you form a limited liability corporation, you may choose to be taxed as a sole proprietorship, partnership or corporation. Furthermore, you'll be able to choose taxation as a C-corporation or a S-corporation.
If you're the single owner of an LLC, you'll be taxed as a sole proprietorship. If you form an LLC with other members, you may choose to be taxed as a partnership or one of the other corporation designations. -
If your LLC is taxed as a sole proprietorship, you'll be able to claim your profits and losses on your individual tax return. If your LLC is designated as a partnership for tax purposes, each member claims his share of profits and losses on his individual tax return.
Since your limited liability corporation is considered a separate legal entity, your personal assets are protected from lawsuits and other threats. When you're taxed as a S-corporation, your share of the company's profits and losses are passed through to your individual tax return. C-corporations are required to pay corporate taxes on profits. - LLCs that are taxed like a S-corporation are required to submit Form 2553 to the Internal Revenue Service. When you elect to have your LLC taxed as a C-corporation, complete Form 1120.
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When you're taxed as a S-corporation, you'll enjoy the same advantages of taxation enjoyed by partnerships. That is, your share of profits and losses is taxed at your applicable tax bracket on your individual tax return.
S-corporations are generally smaller than C-corporations, usually having 75 or fewer shareholders. Non-resident aliens can't be shareholders of a company designated as a S-corporation.
