Essentially, you can be taxed like a partnership, corporation, or sole proprietorship depending on which set of rules is appropriate for your business.
Being taxed as a corporation is a good choice if your LLC keeps a large portion of profits within the LLC as retained earnings.
The corporation structure also allows you to offer various benefits to employees such as stock options and ownership. The LLC pays no taxes but individual members pay taxes on any profits on their personal income tax return. If a member is actively engaged in the business, then she must pay a self-employment tax. If a member spends more than hours on the business annually, then she is considered an active member. LLCs with multiple members can file as a partnership with Form or as a partnership with Form LLCs filed as a partnership do not pay taxes.
Instead, individual members show their portion of earnings on their individual tax returns. This comes into play when distributing profits between members. Members must pay taxes on this amount even if the LLC does not distribute all their money. Limited liability companies with multiple members must file Form However, they are not responsible for paying taxes on business earnings.
If your LLC is designated as a corporation, it becomes its own separate entity with it a unique identification number. The LLC will report all income and deductions on Form annually and pay the appropriate amount. One disadvantage of the corporate tax structure is double taxation. Only C corporations can get a refund. For any other LLC filing types, the business owner will receive the refund.
So yes, you will get your excess tax payments back, but it will be you receiving the money personally, rather than your LLC getting a refund check.
Since an LLC is a business, can you file taxes separately from your personal tax return? The answer is yes and no. It really depends on your LLC tax structure. That means any profits and losses flow through to your tax return. It never hurts to revisit tax requirements, especially when filing as an LLC for the first time. By understanding the obligations for your specific tax structure and knowing the deadlines, you can file your taxes with confidence. She currently lives in Hawaii.
Learn all about your federal income tax obligations as an LLC business. Tax Advice. Related Articles Not Ready to File? If you convert your limited liability company to a corporation, for five years you will be ineligible to convert back to pass-through taxation. If you need help with understanding why an LLC needs to file a tax return, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site.
If an LLC has elected to be treated as a corporation for tax purposes, it must file a federal income tax return even if the LLC did not engage in any business during the year. Even if your LLC has no business activity, it is important to understand your LLC tax filing status and whether it is obligated to file a federal income tax return. Filing required returns on time can help your LLC avoid fines and penalties. Contents 3 min read. Jane Haskins is a freelance writer who practiced law for 20 years.
Jane has litigated a wide variety of business dispute… Read more. Starting a Business. As a business owner, you have many options for paying yourself, but each comes with tax implications. The expenses you incur as you set up your LLC are tax deductible, though you need to know important limits, exceptions, and rules to legally deduct these costs. If an LLC, or Limited Liability Company, seems like the ideal vehicle for your side business, you may be wondering if you can form an LLC while employed at another job.
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