Deciding on LLC doesn’t completely decide your Entity.

The Limited Liability Company is a relatively new entity, and is strictly a “state” entity.  The IRS doesn’t recognize LLCs for tax purposes.  So, if you decide on becoming a LLC, you still have to decide (or the IRS will decide for you!) how you want to be taxed.

With the LLC you get ease of set up and limited liability.   There is also less administration for the LLC.  But how are you taxed?  If you are a single member LLC (just you and no one else, not even a spouse) then if you don’t choose differently, the IRS says by default you are a disregarded entity.  This means that you’re taxed just like any other sole proprietor on a schedule C or F (if you’re a farmer).  As a single member LLC you could also choose to be taxed as a corporation or even a corporation that elects S status.  But you can’t be a partnership — takes at least two.  If you have more than one member of the LLC, then by default the IRS taxes the LLC as a partnership.  However, you can choose to be taxed as a corporation or a S corporation.  With the limited liability and ease of set up, this is a pretty good deal.