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  The limited liability company (LLC) is considered by many to be one of the most convenient and rational compromises devised by business law. It creates a business that allows its owners to avoid personal liability without having to pay taxes directly. The very definition of its purpose is in its name. As a new tax season approaches, some helpful tips could help you to form an LLC conveniently and rationally.
  
  

Select Proper Tax Treatment

• The best advantage to the LLC is its unique "check-the-box" taxation. An LLC can elect to be taxed as sole proprietor, partnership, s-corporation or c-corporation--then switch at a later date. The important part: Any LLC will get a default tax treatment based on the number of members involved. Member action is required to opt out of the default.
  
  Sole-proprietors and partnerships are the default tax treatments for a single and multiple-member LLC. Their income and loss is reported on the member's own tax return. However, by merely filing either a form 1120 or 1120S, the taxpayer can choose to become either a c-corporation or s-corporation for the many tax advantages and business complications they provide.
  
  

Pass Losses Through

• The beginning of any business venture is the most speculative and high-risk, rife with opportunity for success--and losses. In an LLC, the losses it incurs can be deducted from the income of either a fictional entity or a living taxpayer. Opting for either of the default provisions in the LLC allows a member to pass a loss as a deduction through their own individual returns. The LLC allows a member to even switch from that provision, once loss deduction limits are reached or the LLC starts making a profit.
  
  

Avoid the Double Tax

• One of the immediate benefits of the default provision is a popular LLC compromise: There is a protecting entity for purposes of civil liability too, but that entity is not recognized by the Internal Revenue Code. Until the advent of the LLC and s-corporation, entity protection meant entity taxation.
  
  This double taxation has always been considered a threshold problem with c-corporation tax treatment. It means being taxed on the income the corporation makes as well as being taxed when that income is distributed as a dividend. Unlike the c-corporation treatment, the pass-through taxation structure, like sole-proprietors or the s-corporation, means that there is no separate entity tax. However, watch for state taxes on any of these entity structures.
  
  

Get Hit by the SE Tax

• The government has a tendency to give with one hand and take away with the other. Any member of an LLC, under the default tax provisions, is charged a self-employment (SE) tax. According to the IRS, the SE tax is a Social Security and Medicare tax for individuals who work for themselves. The tax rate is 15.3 percent on the first $106,800 and 2.9 percent on income above that. The ramifications of this? On top of income tax with a maximum of 35 percent, an additional 15.3 percent SE tax is levied.
  
  

Utilize Corporate Tax Shelters

• To minimize the amount of tax paid to the government, people have been using corporations as corporate tax shelters for years. While double taxation is an issue, the ability to use capital investments, dividends and stock purchases allows the c-corporation the flexibility to minimize tax liability by spreading the income out or sheltering the income within corporate deductions, favorable tax rates, and the benefits of capital and stock ownership.