Should I Form An LLC? 
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Question: I'm a candidate for a retail business opportunity. I have it in my head that an LLC is better than a corporation/partnership. I know I can always change the status later (when I gain a partner) but for this first step should I apply as a sole proprietor or as a single-member LLC and why? What is the difference? Answer: For tax purposes there is absolutely no difference between an a single-member LLC and Sole Proprietorship. Both file a Schedule C, Profit and Loss from Business. The IRS refers to the LLC as a “Disregarded Entity,” an entity to be disregarded as separate from its owner. Your Social Security number serves as your TIN as a Sole Proprietor. In spite of any marketing hype that you may have heard or read, the LLC has not proven to limit liability. The only thing you would accomplish by choosing the LLC route is to increase your startup costs. You do not say what your goals or concerns are, so I will cover a spectrum of issues. First, Taxes: the LLC, Sub-S, all partnerships, both general and limited, and a sole proprietorship are all "Pass-through Entities". That means you personally pay all of the taxes due, at your tax rate. Corporations, on the other hand, pay their own taxes on lower taxes. Second, Liability: Sole Proprietors are 100% liable, Partnerships not only pass 100% of business liability to you, it passes all of your partner’s debt to you and yours to your partners. Limited Partnerships failed to limit liability, which is why LLCs came about, to plug to hole in the LP. Nevertheless, LLCs are losing in the courts. Sub-S corporations provide little, if any, liability protection as well. The first paragraph of the propaganda that you read about the LLC said, “An LLC provides the pass through benefit of a partnership, with the LIABILITY PROTECTION OF A CORPORATION.” That is because the Corporation has proven liability protection. Third, Doing Business with Others: everyone recognizes, understands and respects corporations. If you are doing business as a Sole Proprietor, you are considered small-time. If you are a corporation, you have your stuff together. You portray that image. Call and we can discuss the reasons you were told the Corporation would be a bad idea, like double taxation. I recently formed a limited liability company (LLC). The LLC has no employees. Do I need a separate Federal Tax ID number for the LLC? No, you will not need a separate Federal Tax ID number for the LLC if you are the sole owner of the LLC and the LLC has no employees. If you are the sole owner of the LLC and the LLC has employees, you will need to get a separate Federal Tax ID number, if you choose to have the LLC report and pay employment taxes with respect to employees of the LLC. If you are not the sole owner of the LLC, you will need a separate Federal Tax ID number for the LLC. See Notice 99-6, 1999-1 CB 321. References: · Publication 1635 (PDF), Understanding your EIN - Employer identification Number - IRS · Form SS-4 (PDF), Application for Employer Identification Number · Form 8832 (PDF), Entity Classification Election
Pasted from <http://www.irs.gov/faqs/faq12-1.html> For IRS purposes, how do I classify a limited liability company? Is it a sole proprietorship, partnership or a corporation? A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), a partnership or a corporation. If the LLC has only one owner, it will automatically be treated as if it were a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), unless an election is made to be treated as a corporation. If the LLC has two or more owners, it will automatically be considered to be a partnership unless an election is made to be treated as a corporation. If the LLC does not elect its classification, a default classification of partnership (multi-member LLC) or disregarded entity (taxed as if it were a sole proprietorship) will apply. The election referred to is made using the Form 8832 (PDF), Entity Classification Election. If a taxpayer does not file Form 8832 (PDF), a default classification will apply Pasted from <http://www.irs.gov/faqs/faq12-1.html>
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