Glossary of Tax Terms: LLC

business-1799_640LLC is an abbreviation for “Limited Liability Company” (yes, “company,” not “corporation”).

LLCs are legal entities formed under state law. As with corporations, LLCs give liability protection but LLCs are usually simpler to form and administer.

The owners of an LLC are called “members.”

Tax Treatment

The tax treatment of an LLC depends on how many members are in the LLC and whether or not the LLC made any special tax elections with the IRS.

  1. A one-person LLC is taxed as a sole proprietorship.
  2. An LLC with two or more owners is taxed as a partnership.
  3. Any LLC can elect to be taxed as either an S-corporation or a C-corporation by filing forms with the IRS.