LLC owners must report their business income and losses on
their personal income tax returns
Similar to a sole proprietorship or partnership you must report
your income to the IRS. An LLC is not a separate tax entity like
a corporation. The IRS considers Limited Liability Company a
'pass through entity." Earnings are taxed only once. Profits and
losses of the LLC 'pass through' the business to the LLC owners.
Owners (members) must then report this information on their
personal tax returns. The good news is the LLC itself does not
pay federal income taxes. But some states do charge LLCs an
annual state tax.
Income taxes and the number of members in your LLC
The number of members in your limited liability company
determines how it is taxed by the IRS.
Single-Owner Limited Liability Company Taxes:
If you are the sole owner of your LLC then the IRS taxes you
much the same as it would a sole proprietorship. All profits and
losses must be reported on your 1040 tax return (on the Schedule
C attachment). You can not avoid taxes by leaving your money in
the LLC's bank account. All profits in the LLC's accounts must
be reported.
Multi-owner Limited Liability Company Taxes:
If there is more than one member of your LLC the IRS taxes you
much the same as it would a partnership. Again the LLC itself
does not pay tax on profits. Individual members must report
their share of profits on Schedule E and attach it to their 1040
form. Each member pays taxes on their distributive share of
company profits, as stated in the LLC operating agreement.
Again, the LLC itself is not taxed by the IRS although there may
be an annual state tax, depending on which state you are in.
State Taxation of Limited Liability Companies:
Although the IRS does not tax LLCs, California levies an annual
minimun franchise tax of $800.00, they expect this payment
within three months of forming your LLC and kindly send you a
bill so you don't forget. Wyoming levies an annual State tax on
of $100.00; California requires an annual List of Officers or
Members filing, fee of $100.00; Delaware levies an annual
franchise tax of $30.00.
About the author:
Dennis Gardener is an assistant editor at
small-business-assistance.
More small business information YOU CAN USE, available at
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