Why are LLCs so popular? What are the advantages of setting up a new company as a LLC?
LLCs are very popular because of their similarity to corporations, giving limited liability to owners and at the same time giving management flexibility like partnerships. Most states allow “single member” LLC i.e. having one owner only. Such LLCs can file their tax similar to that of sole proprietorships by filing Sch C, E or F along with their Form 1040. If the only single member is a corporation then the income and expenses are reported on Form 1120 or 1120S. Multiple member LLCs file their return using Form 1065. The owner of an LLC is considered to be self-employed and, as such, must pay a “self-employment tax” which goes toward Social Security and Medicare. The entire net income of the business is subject to this tax at a rate of 15.3%.
