Understanding LLC Structures: Which Is Right for You?

Choosing the right business entity is one of the first—and most important—decisions for any business owner or real estate investor. Limited Liability Companies (LLCs) are a popular choice because they offer flexibility, liability protection, and potential tax benefits. However, not all LLCs are the same. Below, we break down the most common LLC structures, their purposes, and how they are taxed.

1. Single-Member LLC – Holding Real Estate

Purpose: Asset Protection

Tax Form: Schedule E (reported on your personal return)

A single-member LLC (SMLLC) is ideal for real estate investors looking to protect their personal assets from potential property-related liabilities. By placing each property into its own LLC, you create a legal separation between your personal finances and the property. Income from rental properties flows directly to your personal tax return, typically on Schedule E, maintaining simple tax reporting while enhancing liability protection.

2. Single-Member LLC – Side Hustle

Purpose: Business Legitimacy & Asset Protection

Tax Form: Schedule C (reported on your personal return)

If you’re running a side business—consulting, online sales, photography, or any freelance work—forming a single-member LLC adds a layer of professionalism and protection. It signals to customers that your business is legitimate, and it helps shield personal assets from potential business liabilities. Profits and losses flow through to your personal return on Schedule C, and you’ll also pay self-employment taxes on the net income.

3. LLC Taxed as an S-Corporation

Purpose: Tax Minimization

Tax Form: 1120-S

An LLC can elect to be taxed as an S-Corporation by filing IRS Form 2553. This structure is commonly used for operating businesses generating consistent profits. The S-Corp election allows owners to split income between a reasonable salary (subject to payroll taxes) and remaining profits (distributed as dividends, avoiding self-employment tax). For many business owners, this results in substantial tax savings. Income and expenses are reported on Form 1120-S, with a Schedule K-1 issued to each owner.

4. Multi-Member LLC

Purpose: Multi-Owner Investment or Operating Company

Tax Form: 1065 (Partnership Return)

When two or more people own an LLC, it is by default treated as a partnership for tax purposes. This setup is ideal for friends, family members, or business partners starting a joint venture or real estate investment. The LLC files a Form 1065 partnership return each year, and profits or losses are passed through to owners via Schedule K-1, avoiding double taxation while maintaining liability protection.

5. Series LLC

Purpose: Holding Multiple Real Estate Assets

Tax Form: Schedule E or 1065

A Series LLC is a powerful structure available in certain states, including Texas. It allows one “parent” LLC to establish multiple “series” or “cells,” each holding a separate property or asset. The benefit is streamlined administration—you file one entity formation while keeping each property isolated for liability purposes.

• Single-owner Series LLCs often report rental income on Schedule E.

• Multi-owner Series LLCs file a Form 1065 partnership return.

6. PLLC (Professional Limited Liability Company)

Purpose: Licensed Professionals (CPAs, Attorneys, Doctors, etc.)

Tax Form: 1065

Some states require licensed professionals to form PLLCs instead of standard LLCs. This structure provides liability protection for business debts while complying with professional licensing regulations. PLLCs are commonly taxed as partnerships using Form 1065, with income flowing to the owners via Schedule K-1.

Choosing the Right LLC Structure

Each LLC type has unique benefits depending on your goals:

• Protecting rental properties → Single-Member LLC or Series LLC

• Side business with minimal risk → Single-Member LLC (Schedule C)

• Maximizing tax efficiency → LLC taxed as S-Corporation

• Partnerships or joint ventures → Multi-Member LLC or Series LLC

• Licensed professionals → PLLC

  
  

At Shifflett & Philips CPA, we help business owners and real estate investors choose the right entity and navigate the tax implications. The right structure can save you thousands in taxes and protect your hard-earned assets.