Business
LLC
A legal structure that separates a business’s liabilities from its owners, formed with a state.
Also called Limited liability company.
An LLC is a state-law wrapper, not a tax status. Forming one changes who is liable for the business’s debts. By itself it changes nothing about how the business is taxed.
A single-member LLC is taxed as a sole proprietorship by default, on Schedule C. A multi-member LLC is taxed as a partnership by default, on Form 1065 with a K-1 to each member. Either can elect to be taxed as an S-corporation instead.
This is the most consequential confusion in small-business tax, and it runs both ways: people form an LLC expecting a tax change that does not come, and people assume an LLC must file its own return when most do not.
In Contha
Contha covers a single-member LLC taxed as a sole proprietorship, on its Schedule C. An LLC that elected S-corp treatment is not covered yet.
Related
Terms that come up beside this one
Sole proprietorship
A business owned by one person that is not legally separate from that person.
S-corporation
A tax election under which a business pays its owner a salary and passes the remaining profit through to them without self-employment tax.
Partnership
A business with more than one owner that files its own information return and passes profit through to the partners.
Disregarded entity
A business that exists legally but is ignored for federal tax purposes, its activity reported on the owner’s own return.