What is the difference between...

For many small business owners, a Limited Liability Company (LLC) offers advantages over a c corporation (also known as a "general" corporation). Creating an LLC combines the tax advantages of a sole proprietorship or partnership with the liability protection of a corporation. The IRS taxes the profits of a c corporation at corporate tax rates. Then, if the c corporation pays dividends to shareholders, the IRS taxes those dividends a second time at the personal income tax rates of the shareholders. The LLC business structure avoids this "double taxation." The Internal Revenue Service (IRS) does not consider an LLC itself a taxable entity. Instead, the company's earnings "pass through" to the owners, who report their share of profits or losses on their individual tax returns. Small business owners who want the flexible structure of an LLC but the advantages of corporate taxation can elect corporate taxation for their LLC. To elect corporate taxation, owners file Form 8832, "Tax Classification Election," with the IRS. Electing this status may also make an LLC eligible for certain deductions available only to corporations. For specific guidance, small business owners should consult their accountant or tax advisor regarding this election.