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How are LLC’s taxed?

First things first, what is an LLC? LLC stands for Limited Liability Company and these are strictly legal entities set up through the State and are used to protect personal assets.

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How are LLC’s taxed?

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  1. HOW ARE LLC’S TAXED? EA TAX RESOLUTIONS EA Tax Resolutions’ is one of the leading agencies with a team of IRS Enrolledagents to help you resolve your tax issues effectively.

  2. First things first, what is an LLC? LLC stands for Limited Liability Company and these are strictly legal entities set up through the State and are used to protect personal assets. The IRS does not recognize the LLC as an entity, there is no IRS LLC tax form. As an LLC you have the choice to decide how the LLC is taxed. There is no IRS LLC tax form.

  3. Most Common Choices of Taxation for LLCs Sole proprietorship The IRS treats single owner LLCs as sole proprietorships, meaning the LLC itself does not submit a return or pay taxes. The owner is responsible for filling out a Schedule C reporting all profits or losses and submitting it to the IRS with the 1040 tax return. Even if profits are left in the company’s account for future purposes, taxes must be paid on all profits.

  4. Partnership When a LLC has multiple owners, the LLC can be treated as a partnership for tax purposes. Just like a single owner LLC, the taxes are paid by the owners. Profits are shared and the values are reported on the owner’s tax return. Each owner receives a share on the profits or losses – which is determined beforehand. This agreement is known as a “distributive share” and is included in the LLC operating agreement.

  5. S-Corporation As a single member or multi member LLC you can elect to be treated as a S-Corporation for tax purposes. Just like a sole proprietorship or partnership, the taxes are paid by the owners. Profits are shared and the values are reported on the owner’s tax return.

  6. C-Corporation If the owner(s) of an LLC decide they need to leave a significant amount of profits in the LLC for whatever reason, this is known as “retained earnings.” In this case, the owner(s) would benefit from corporate taxation. In order to be treated as a corporation for tax purposes, the Form 8832 (Entity Classification Election) must be filed with the IRS. Corporate tax rates on the first $75,000 are lower than individual income tax rates, resulting in potential savings.

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