A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, therefore, you should check with your state if you are interested in starting a Limited Liability Company. Consequently, TurboTax cannot advise you whether you should or should not create a LLC for your business.
As a way of background, owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs (SMLLC), which have only one owner.
For tax purposes, you may have heard the term "disregarded entity" when referring to SMLLCs' and taxes. That is because the IRS considers a SMLLC a "disregarded entity", meaning there is no separation between the business and its owner for tax purposes (and tax purposes only; legal issues are a different matter). By default, the IRS taxes a SMLLC the same as a sole proprietorship.
However, as a SMLLC, you do have the option to be taxed differently, and perhaps this is something you might consider going forward. For example, while the business income tax obligations of a SMLLC are the same as a sole proprietor, the SMLLC may choose to be taxed as a C Corporation or S-Corporation. This is something you can’t do if you elect to do business as a sole proprietorship.
There are many things to consider before electing to be taxed as a C-Corporation or an S-Corporation and therefore, you should discuss this issue with your personal tax advisor.
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