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Limited Liability Company (LLC)

A very popular way to organize a small business is the Limited Liability Company (LLC). A Limited Liability Company protects its owners' personal assets from business creditors.

LLC protects its owners personal assets from business creditors. So if the business is sued or incurs obligations it can't meet, a creditor can only go after the business assets not property belonging to the members.

LLC owners liability for business debts is limited to their ownership interest in the business hence the name limited liability. Additionally all members can take an active role in the operation of the business without exposing themselves to personal liability.

Tax Reporting

Limited Liability Company (LLC) are not taxpaying entities but it is a pass-through tax entity. California taxes LLC even though the IRS does not, minimum taxes in California for LCC is $800.

At Kyrish C.P.A. Inc., Sunita Jagasia is a Certified Public Accountant with many years of experience filing LLC taxes. LLC taxes are tricky and should always be professionally prepared.

Owners also called members report and pay taxes on LLC income on their individual tax returns and are responsible for filing and paying quarterly estimated taxes.

LLC losses also pass through to the members and can be claimed on their tax returns for tax benefits. LLC members claiming losses must have materially participated in the business, they cannot just be passive investors.

Single member LLCs (and husbands and wives in community property in community property states) can report LLC income or loss on schedule C.

Multiple members LLC must file Form 1065 a partnership informational tax return.

Limited Liability Company (LLC) Members Rights

LLC members don't have to be involved in managing the business. They can be passive investors in the LLC. However there are some legal rights an LLC member must hold such as the right to vote to dissolve the LLC.

Unless restricted in the LLC operating agreement transferring an LLC ownership interest is relatively easy the member simply signs over his or her membership interest.

Other partnership income such as dividends from stock, earned interest on its bank accounts, sale of assets etc are also reported in K-1.

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