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<br />How do I choose my tax treatment category? <br />It is important to note that how the LLC is taxed does not affect the legal protections the LLC provides. <br />For example, an LLC could be set up to be taxed like a sole proprietorship while still providing limited <br />liability protection. <br />One Member LLC <br />An LLC with 1 member will be treated as a disregarded entity by default. This means the LLC will be <br />taxed as a sole proprietorship. <br /> <br />Two Member LLC <br />An LLC with 2 or more members will be taxed as a partnership by default. If you choose to be taxed as <br />a partnership, the income from your LLC passes through to the members and is declared as personal <br />income. In this way income is only taxed once but the personal income tax rates paid by the members <br />may be much higher than the applicable corporate rate. <br /> <br />Additionally, any LLC has the option to be taxed as a corporation. A disadvantage of a corporate tax <br />model is double taxation - where the LLC pays taxes on company income and the members also pay tax <br />on any income that members receive as dividends from the LLC. The advantage of the corporate tax <br />model is that if most of the profits of the LLC can be retained in the company then double taxation can <br />be minimized and overall tax paid at a lower corporate tax rate. <br /> <br />Your choice of taxation method should result in the lowest taxes. If you have any further questions you <br />should contact a local tax lawyer or accountant. <br /> <br />Are there any limits on distributions? <br />State law often restricts the amount of company distributions in order to ensure the company remains <br />solvent. For example, some states have a distribution limit that prevents the company’s liabilities from <br />exceeding assets after a distribution is made. <br /> <br />LLC Operating Agreement Page 2 of 3 <br />1003 W Richland Ave Units 18, <br />19, 20 & 21 - 101117246 & <br />7255-576/19/2024