What is one advantage of a Limited Liability Corporation (LLC)?

The advantage of a Limited Liability Corporation (LLC) being taxed only on the income distributed to members is rooted in the structure of the LLC itself. An LLC is often classified as a pass-through entity for tax purposes, meaning that the business itself does not pay federal income tax. Instead, income is reported on the members' personal tax returns, reducing the overall tax burden. This setup allows members to only incur tax on the distribution they actually receive, avoiding taxation on income retained within the company.

This setup is particularly beneficial for small business owners or individuals looking to maximize their earnings after taxes, as it simplifies the tax process and allows for more flexible distribution of profits. Additionally, this structure can lead to potential savings compared to other business types, such as corporations that are subject to double taxation—paying taxes at the corporate level and again on dividends distributed to shareholders.

Other choices, such as unlimited personal liability for members, imply a lack of legal protection that an LLC actually provides, as one of its main advantages is limiting personal liability. Similarly, the requirement to file corporate income taxes contradicts the LLC's advantageous tax treatment, as it does not typically necessitate filing these taxes at the corporate level. Lastly, noting that there are no limitations on