What tax structure do LLCs typically follow?

Limited Liability Companies (LLCs) have a unique tax structure that provides flexibility to their owners. Typically, an LLC can choose how it wants to be taxed. By default, a single-member LLC is taxed as a sole proprietorship, meaning the owner reports the income and expenses on their personal tax return. For multi-member LLCs, the default tax treatment is as a partnership, where income, deductions, and credits are passed through to the members' individual tax returns.

Moreover, LLCs have the option to elect taxation as a corporation, including S corporation status if they meet certain requirements. This capability allows LLCs to benefit from varying tax treatments depending on the business circumstances and the preferences of the owners.

This flexibility in tax classification is what distinguishes LLCs from other business structures and makes them a popular choice among entrepreneurs looking for limited liability protection combined with versatile tax options.