Taxation of LLC’s is sometimes misunderstood. All businesses no matter their legal structure must file an annual return. Sole proprietorships and corporations file an income tax return. Partnerships and S Corporations file and information return. These filings are not optional for these types of legal entities.
However, an LLC has several tax filing options it can adopt. An LLC with at least two members can choose to be classified for tax purposes as either a corporation or a partnership. If the LLC elects to be taxed as a partnership it will use IRS Form 1065 as an information return, and the income will be reported on the member’s personal form 1040. If the LLC elects to be treated as a corporation the entities income will be taxed prior to any dividends paid to the members and then taxation of the dividends or distributions once received as income will be taxed to the members.
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2 years ago
Interesting and informative post! An LLC is better to other business entities for tax reasons alone. With other corporations, the company as a whole is taxed, which means you pay tax on all income. You'll pay personal income tax on your own earnings and for the company. Double taxation can get very costly.
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