Doing business as a Limited Liability Company is popular because, similar to a corporation, owners (members) have limited personal liability for the debts and actions of the LLC. At the same time there is great management flexibility, and LLCs enjoy the benefit of pass-through taxation. Members may be individuals, corporations, other LLCs and foreign entities. There can be only one member of an LLC (in most states), or there can be an unlimited number of members. We are frequently asked how LLCs are taxed.
If an LLC has only one member (a single member LLC), the default taxation is that the member files as if the LLC does not exist. So if the single member is an individual, LLC income and expenses are reported on schedule C, E or F of the member’s 1040 return. If the single member is a corporation, the LLC income and expenses are reported on the corporation’s return (usually Form 1120 or 1120S). If an individual LLC single member prefers the LLC to be taxed as a corporation, the LLC must submit IRS Form 8832 to change the default and select the corporate form of taxation.
If an LLC has multiple members, the default is for the LLC to be taxed as a partnership (Form 1065). If the LLC prefers to be taxed as a corporation, the LLC must submit IRS Form 8832 to change the default and select the corporate form of taxation.
Remember that LLCs are subject to withholding of employment tax. Members of single member LLCs are subject to self-employment taxes on earnings. Also, members of multiple member LLCs pay self-employment taxes on their share of partnership earnings.
We would be happy to be of assistance in solidly planning and properly setting up a business entity for your venture.
Paul Tipton
(214) 890-0991
ptipton@tiptonjoneslaw.com
