A limited liability ("LLC") is a non-corporate business entity, in which all members have limited liability protection, in which all members can participate in management and control, and which, if appropriately structured, is taxed as a partnership rather than a corporation for federal income tax purposes. By combining limited personal liability with partnership tax classification, the LLC can provide advantages which are unavailable to corporations, partnerships or limited partnerships thereby affording investors the latitude to participate in business ventures.
A single member LLC defaults to the disregarded entity status at the federal level of taxation. An LLC with two or more members defaults to the partnership entity status at the federal level of taxation. Should the members want to tax the LLC as a corporation, then Form 8832 would need to be filed. An LLC that is taxed as a corporation can then request Sub Chapter S status.

In community property states the IRS allows a husband-and-wife owned LLC that is community property to be treated as a single member LLC thereby allowing the LLC to be treated as a disregarded entity at the federal level. Many states follow the federal classification of the LLC for tax purposes.

Additionally, the LLC may be an appropriate vehicle for real estate investment, because it combines liability protection with favorable partnership tax treatment.

Accordingly, a LLC, if appropriately structured to be classified as a partnership for federal income tax purposes, is permitted to allocate tax items of income, gains, losses, deductions, and credits among its members in accordance with its "partnership agreement" (i.e., operating agreement or regulations).

There are no major differences in the federal income tax treatment of LLC'S and limited partnerships. The principal advantage of the LLC over the limited partnership is the limited liability protection afforded all LLC members and managers. Limited partnerships are required to have one or more general partners, who are personally liable for partnership debts and obligations. The LLC affords limited liability protection to its members regardless of the extent to which they participate in management and control of the LLC business affairs. A similar result might be obtained by use of a limited partnership with a corporate general partner controlled by the limited partners.

A very affective and useful Asset Protection vehicle would entail the use of a LLC. The specific arrangement would depend on your particular circumstances, business activity, and the type of assets owned. If you are engaged in any business or if you own property, we recommend that you take necessary steps to arrange your affairs in order to maximize the income tax, estate planning and law suit protection techniques currently available.