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A Complete Guide to LLC Tax Forms
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A Complete Guide to LLC Tax Forms
Embarking on a business adventure is an exciting time. There are a lot of decisions to make that will have an overall impact on your business. One decision is the type of business entity you want, which is based on your business goals.
If your research led you to form an LLC over another business entity, you will need to think about taxes. The Internal Revenue Service has different rules and regulations when it comes to business taxes, and it can be confusing to keep track of everything tax-related. There are tax forms for sole proprietorships, tax forms for partnerships, tax forms for S Corps and C Corps, and even tax forms for NPOs. Before your head starts spinning, hold on because all of your LLC tax related questions will be answered and you’ll be fully prepared to tackle LLC taxes.
Table of contents
What is an LLC?
Think of an LLC, or limited liability company, as a hybrid business entity since it’s a combination of a sole proprietorship and partnership. They’re more flexible than a corporation since the management structure isn’t as strict and there are fewer regulations to follow. A lot of laws that govern the management of the LLC can be changed with an operating agreement.
LLC owners or members are usually equal participants in the management of the business. Members can modify voting rights in the operating agreement. The voting rights can either reflect the ownership percentage or have equal voting power regardless of the ownership percentage.
LLCs also offer owners liability protection, meaning their personal possessions – homes, cars and investments – are protected from any legal action from lawyers or creditors. So if your company has any debts or lawsuits, you won’t personally be held responsible.
How is an LLC taxed?
Since an LLC isn’t a separate legal entity like a corporation, it’s considered to be a pass-through entity, and the tax classification for LLC is even called pass-through. So when it comes to LLC taxes, all the business profits and losses pass through to the owners. Then they’ll report this information on their own personal tax returns. The LLC itself doesn’t pay taxes, meaning there’s no corporate tax. But some states may require an annual tax for LLCs.
Single-member LLCs
Multi-member LLCs
LLC tax
Although a multi-member LLC doesn’t pay tax on its profits, IRS Form 1065 must still be filed. The IRS uses this form to ensure LLC owners correctly report their income. Plus, the LLC needs to provide each LLC owner with a Schedule K-1, which explains the profit and loss shares for each member. Then each owner will report the profits and losses on Form 1040 and attached Schedule E.
Consider corporate taxation
Electing for corporate taxation might be a good option for your business if you keep a significant amount of your profits, or retained earnings, in your LLC. If you decide to be treated as a corporation when it comes to taxes, you’ll need to file Form 8832.
All C corporations are taxed on their profits at a rate of 21%, which is lower than most popular income tax rates, running between 32% and 37%. LLC members would fall within this tax rate and therefore are taxed at a higher percentage. So choosing to be taxed as a C Corp can save LLC members money in the long run. But, you’ll be subject to double taxation. S corporation owners can consider themselves as an employee and therefore avoid double taxation.
How do I file LLC taxes with my personal taxes?
As a single-member LLC, you’ll file your Form 1040, along with Schedule C. Schedule C is used to record your expenses and any income from the business. Once you total that amount, you’ll include it as income or loss on Form 1040.
Form 8832
Form 8832 is an important LLC tax form because it tells the IRS how to classify the business regarding federal taxes. If your business fails to file Form 8832, you’ll automatically receive a default tax classification, which could impact your taxes.
When it comes to LLC tax filing, LLCs need to file Form 8832 if they want to be taxed as a C Corp. Both single-member and multi-member LLCs file Form 8832 if they want to be taxed as a partnership, sole proprietorship or C corporation. If you don’t file Form 8832, single-member LLCs will automatically be taxed as a sole proprietorship and multi-member LLCs will be taxed as partnerships. If you want to be taxed as an S corporation, you’ll need to file Form 2553 instead of Form 8832.
You can file Form 8832 at any point in the business’ lifetime. There’s no deadline to file Form 8832, so if you want to file it when you start your business, you can. Or, you can file it at another time. Typically, you’re only allowed to change your tax status every five years.
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