Limited Liability Company (LLC)
An LLC is a state-registered business structure that shields your personal assets from business debts and lawsuits, while letting you choose how the IRS taxes the profits.
An LLC gives you the liability wall of a corporation without the corporate paperwork. The business is its own legal entity, so if it gets sued or can't pay a vendor, creditors come after business assets, not your house or personal savings. That separation is the whole point, and it only holds if you treat the LLC as a real separate thing.
Taxes are where the flexibility lives. By default, a single-member LLC is a "disregarded entity" — you report profit and loss on Schedule C of your personal return, same as a sole proprietor. A multi-member LLC defaults to partnership taxation (Form 1065). But you can also elect S-Corp or C-Corp treatment, and for a profitable business the S-Corp election often saves real money on self-employment tax. Most owners stick with the default until profit climbs high enough to justify running payroll.
Two 2026 numbers matter for pass-through LLC owners. First, the Section 199A qualified business income deduction — that 20% write-off on pass-through profit — is now permanent under the One Big Beautiful Bill Act. It was set to sunset after 2025; it won't. The phase-in ranges also widened to $75,000 for single filers and $150,000 for joint filers, and there's a new $400 floor: if you have at least $1,000 of QBI from a business you materially participate in, you get at least $400. Second, 100% bonus depreciation is back and permanent for qualifying equipment acquired and placed in service after January 19, 2025 — buy a $40,000 truck for the business this year and you can expense the whole thing instead of dragging it out over five. Just know the two interact: expensing a big asset lowers your net income, which is the same number your 20% QBI deduction is figured on, so a giant write-off shrinks the QBI deduction in that year.
You form an LLC at the state level, and the cost gap between states is large. California hits every LLC with an $800 minimum annual franchise tax whether or not you turn a profit (new LLCs get a pass on year one). Wyoming charges no state income tax, no franchise tax, and a $60 minimum annual report fee. That's why so many holding companies sit in Wyoming and so many California operators grumble about the $800 every April.
The protection isn't automatic. Commingle funds — pay personal bills from the business account, skip the operating agreement, run the LLC like a hobby — and a court can "pierce the corporate veil" and reach your personal assets anyway. Keep a separate bank account, document major decisions, and don't sign personal guarantees you don't have to. The legal shield is only as strong as the discipline behind it.
Practical Example
Mike runs a single-member landscaping LLC in Texas, funded with $5,000 of his own cash and kept in a separate business checking account. Early in 2026 he buys a $40,000 work truck and, under permanent 100% bonus depreciation, expenses the full $40,000 the year he puts it in service. After that write-off and his other costs, the business still nets $80,000 for the year. Because he qualifies for the Section 199A deduction, he writes off 20% of that $80,000 — $16,000 — leaving $64,000 of taxable business income. (Worth noting: the truck deduction already came out before that $80,000, so it's lowering his income, not stacking on top of the QBI break.) Separately, a client trips on a job site and sues for $200,000. Since Mike never mixed personal and business money and kept the LLC properly maintained, only the company's assets are exposed — his home and personal savings stay out of reach.