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LLC Taxation

How are LLCs taxed and what forms do you need to file? Below is a brief discussion of the three most common formats:

LLC taxed as Sole Proprietorship

A limited liability company is not a taxing entity, and the Internal Revenue Service does not recognize it for tax purposes. So how does an LLC pay income tax? The IRS says that an LLC may be taxed as a partnership or a corporation (for a multiple-member LLC), or disregarded as an entity separate from its owner (for a single-member LLC).

How a limited liability company pays income tax depends on whether the LLC has one member or more than one member, and whether the LLC elects to treated as a different business form for tax purposes.

LLC taxed as Partnership

If your LLC has more than one owner, partner, or member, you would be filing as a Partnership on Federal Form 1065 and any applicable state forms. We support returns in all 50 states. The state may also have an additional LLC reporting requirement. The 1065 return is a separate return altogether that will generate K-1s, which must then be input into each owner’s profit. We will be happy to assist with both your partnership and individual returns, if necessary. There are also particular tax strategies to keep in mind.

LLC taxed as an S-Corp

The S-Corp classification must apply for with the IRS. The purpose of converting to an S-Corp is to take advantage of decreased self-employment taxes. The primary reason why persons choose the S-Corp structure. The LLC advantage of this tax strategy, an S-Corp election must be filed and approved by the IRS based on specific terms. To learn more about our LLC tax services, or if you have any questions about how LLC’s tax, please contact us today.