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What is a key characteristic of a limited liability company (LLC)?
What is a key characteristic of a limited liability company (LLC)?
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Practice Questions
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Q1
What is a key characteristic of a limited liability company (LLC)?
Unlimited personal liability
Pass-through taxation
No formal structure required
Ownership is restricted to one person
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An LLC allows for pass-through taxation, meaning profits are taxed at the owner's personal tax rate.
Questions & Step-by-step Solutions
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Q
Q: What is a key characteristic of a limited liability company (LLC)?
Solution:
An LLC allows for pass-through taxation, meaning profits are taxed at the owner's personal tax rate.
Steps: 5
Show Steps
Step 1: Understand what an LLC is. An LLC stands for Limited Liability Company, which is a type of business structure.
Step 2: Learn about taxation. In many business structures, the company itself pays taxes on its profits.
Step 3: Know what pass-through taxation means. In an LLC, the profits are not taxed at the company level.
Step 4: Realize that instead, the profits 'pass through' to the owners. This means the owners report the profits on their personal tax returns.
Step 5: Understand the benefit. This can often result in lower overall taxes for the owners, as they are taxed at their personal tax rate.
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