How is a limited liability company (LLC) taxed?
What are the different types of taxes an LLC has to pay (e.g. income, state, federal, expenses, etc.)? What are the tax advantages of a filing taxes as an LLC, as opposed to an S-corp or C-corp?
Short answer is LLCs are taxed similar to partnerships, meaning at the end of the year the income of the LLC is passed trough to the members/owners of the LLC to report as income on their individual tax returns.
Here are some of the commons terms and answers to your questions.
SMLLC – Single Member LLC
LLC - Limited Liability Corp - for tax purposes, the IRS classifies businesses as:
• Sole proprietorship
• C corporation
• S corporation
Therefore, an LLC is NOT a tax classification. LLC’s are taxed as though they are another type of business, and the IRS automatically taxes SMLLCs as sole proprietorships and multi-member LLCs as partnerships; BUT an LLC can also choose to be taxed as a C Corporation or as an S Corporation
? In order to elect a new tax status for the CURRENT tax year (assuming calendar year = fiscal year), the organization must file Form 2553 by March 15 of that year
? OR for different fiscal year, within the first 2.5 months of the year in which the organization wants the new tax status to be effective
Disregarded entity – a business entity with one owner that is not recognized for tax purposes as an entity separate from its owner. For example, a single member LLC IS considered to be a disregarded entity (if no election has been made for C or S Corp taxation).
S Corp - Unlike an LLC or a C Corporation, an S Corp is NOT a type of business entity
• S corporation designation refers to the way a business has chosen to be taxed under the Internal Revenue Code
A limited liability company (LLC) is not a separate tax entity like a corporation; instead, it is what the IRS calls a "pass-through entity," like a partnership or sole proprietorship. The LLC itself does not pay federal income taxes, although some states impose an annual tax on LLCs.