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Thursday, March 11, 2010

Benefits of a Disregarded Entity - Choosing the LLC

Are you running a one-man or one-woman operation? Looking for the limited liability protection of a corporation or LLC? Concerned about the complexity involved in the administration and tax obligations of that entity?

Why not consider an LLC?

One of the often overlooked benefits of operating a closely held business as an LLC is that, if there is only one member (owner), the entity is disregarded for tax purposes. This allows the LLC to report income and loss on the personal income tax return of the owner rather than having to file (and pay for) a separate partnership or corporate tax return.

In addition, the LLC would allow the owner to take "draws" from the business without having to set-up payroll. This is particularly attractive if there will be no other employees of the business. However, the owner is still responsible to pay estimated taxes (and self-employment taxes) on a quarterly basis.