Question: I am starting a small business formed as a single member LLC. I am listed as the sole member. As per the documents, the IRS initially classifies the business as a disregarded entity in New York State and says that I must complete and submit the required forms to the IRS. Provide me with some background on both an A Corporation or S-Corporation and advise which is suitable for someone like myself that's starting a small business?

Answer: A Limited Liability Company (LLC) is a business structure allowed by state statute. Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”).

Specifically, a domestic LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation.

There are two types of corporations - C-corporation and S-corporation. The main difference - C-corporation pays its own corporate income tax, but S-corporation generally will not pay income tax but will pass all taxable income to shareholders (In this case the taxpayers).

Both the C and S Corporation form of business will afford more protections legally. Check with an attorney about that as I am not an attorney and could be wrong.

After 2009, The IRS will usually seek the assets of the LLC (disregarded entity) if it goes to collection and they have to seize do to non-payment of taxes. So individual assets (your house) would be protected. As with everything else - maybe.