What you must Know about Limited Liability Company Tax Return
LLCs or Limited Liability Companies are popular mainly as owners have limited personal liability for the
debts and actions much like a corporation. A Limited Liability Company (LLC) is a business structure
allowed by state statute. Most of the features of LLCs are more like that of a partnership, and they
provide the management the flexibility and the benefit of pass-through taxation. Members or owners of
an LLC can be individuals, corporations, other LLCs and foreign entities and there is no limitation on the
maximum number of members. An LLC is a Limited Liability Company, gives the business owner,
freedom of personal liability from most (not all) damages or debts incurred by the business.
The federal government does not recognize an LLC as a classification for federal tax purposes. It is
essential for all LLC business entities to file a corporation, partnership or sole proprietorship tax return.
An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business
entity classification. As form 8832 is also filed to change the LLC’s classification, it means that means an
LLC can take advantage of lower tax rates without having to change its corporate structure.
Understanding the implications of LLC formation
While there could possibly be tax implications if you convert an existing business like a corporation into
an LLC, the conversion may perhaps result in taxable gains. It will avoid double taxation unlike
corporations, and owners have limited personal liability for the debts and actions of the LLC. The other
features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-
Taxation of the LLC
Regardless of whether they have a received a share in profit LLC owners must pay taxes on their
distributive share of the profit of the company. LLC owners must pay self-employment taxes (Social
Security/Medicare), while corporate owners who serve as employees only pay half of the self-
employment tax amount on their salaries while the rest is paid by the corporation. It is important to
remember that most of the income that is used as part of business operations cannot be taxed, but
deducted as a business expense. This has a significant impact on the amount of taxes owed, and it is
important to be aware of the many deductions available.
Managing your LLC tax effectively will always be conducive to the growth of your business. Taking the
help of an expert can help in easing your tax burdens and also give you assistance in all your tax related
issues like business tax returns etc.
Related Links: Itemized tax 2106, S Corp tax planning