|
Q.How is an LLC Taxed?
A.In a single member LLC, the member is treated the same as a sole proprietors. Profits are reported on Schedule C of the 1040 tax return and self-employment tax from the net income of the LLC must be paid just as you would with any self-employment business. Please note that as with a sole proprietorship, all profits of the LLC are taxed to the owners, even if they are not actually distributed by the LLC. This situation could happen when the LLC needs to use its profits to meet ongoing expenses.
In a multiple member LLC, the owners are treated like partners in a partnership by the I.R.S. The LLC must complete and file I.R.S. Form 1065, Partnership Information Return. On this form, the LLC will report its profits (or losses) and allocate the same to each of the members according to the LLC's Operating Agreement. Each member will be provided a Schedule K-1, which will show each member's share of LLC income or loss. The member must then report this figure on the member individual 1040 income tax return.
However, if the LLC does not want pass-through taxation, the LLC may elect to be taxed as a corporation by completing I.R.S. Form 8832 and checking the corporate income tax treatment box. Upon making this election, the LLC will be taxed as a C corporation by the federal government.
In addition to federal and state income taxes, in some states the LLC will be subject to state franchise taxes. In California, for example, the LLC is subject to an annual minimum franchise tax of $800 per year, which must be paid within 3 months of the date of formation. The state of California will send a bill to help you make this payment. In addition to the $800 minimum franchise tax, the LLC is all subject to a gross receipts tax on gross revenues exceeding $250,000 per year.
|
|
