The following is taken from one of my favorite books on tax, David J. Cartano’s Federal & State Taxation of Limited Liability Companies. He does a great job of writing plainly, and he really covers all the basis (it is a law/tax book however and so is still steep, deep, and dry). I am writing this paragraph out, however, because Cartano takes the same approach to LLCs that most lawyers do. Here is the paragraph, and then I will explain.
An LLC is designed to incorporate the most favorable aspects of corporations, general partnerships, limited partnerships, and other entities. It provides a single tax at the shareholder level. Losses may pass through to the owners. The LLC may make special allocations of income, gain, loss, credit, and deductions to members. A member may increase his basis in the membership interest by the amount of LLC debt. The members, owners, and managers of the LLC receive the same limited liability protection as shareholders, officers, and directors of a corporation. Overall, the LLC is the most flexible vehicle for a business.
Hold on if you feel like your head is whirling from that little paragraph. Lets slowly take his statement apart.
1. The first line of Cartano’s statement points out that the LLC is not a creation unto itself, but is made from two parts. It is a creation from the two most widely used business models, a corporation and partnership. It is essential to remember that an LLC cannot be analyzed by itself. In every circumstance one has to determine whether we are dealing with a part of the LLC that is from the corporation, or the partnership. For a thorough explanation of this concept read the “definition of an llc: part-1” on STARTright Biz-Law blog.
The rest of Cartano’s statement speaks from a position where the tax election, or the manner in which the LLC will be taxed is a foregone conclusion. This drives me nuts. His final statement “Overall, the LLC is the most flexible vehicle for a business” is profoundly true. But from a tax standpoint, his approach ignores one of the most flexible aspects of the LLC. An LLC may choose the manner in which it will be taxed. Since 1997 when the IRS instituted check the box taxation, an LLC may choose to be taxed as a Partnership/Soleproprietorship (depending upon the number of members), an S-Corporation or a C-Corporation.
This flexibility to choose the LLC’s manner of Federal Tax (and most states allow the LLC to be taxed in the same manner it is taxed Federally) is called “Check The Box Taxation”. Over the next couple of weeks I will address these three different styles of tax in detail. The point I want to make is that even though the default manner of tax for the LLC is Flow through, there are other options. For the majority of LLCs, flow through taxation is preferable. It is best to understand your options however, because there are times when the other two are very useful.
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As a business law attorney and founder of STARTright, Spencer Rose is the driving force behind STARTright, and the voice behind STARTright Talk. A graduate of Boston University School of Law, Spencer developed STARTright to help entrepreneurs navigate the waters of starting a new business, especially the legal and tax aspects. "Talk is my opportunity to write about all kinds of aspects affecting entrepreneurship and business building." 
LLC Better Than A Corporation - Real Example | STARTright Talk
on Aug 13th, 2009
@ 11:19 am:
[...] have discussed the Federal check the box tax laws, the flexibility of LLC tax and discussed how Utah LLC tax Law follows the federal check [...]