Responsibilities as an LLC
Creating a LLC is one of the most popular ways for a company to exist but you have to keep in mind the potential tax responsibilities that come from creating this type of business. The LLC formation offers you limited liability protection if you are an owner. However, you are taxed at your personal income tax rates.
First let’s start with key questions that need to be asked and answered in order to understand the tax responsibilities of an LLC. Now will be a great time for you to grab some note taking materials!
ASK THIS!
* Is an LLC a taxing entity?
An LLC is not a taxing entity, so the IRS doesn’t recognize it as a business form that can pay taxes.
*How can you pay taxes as an LLC?
As an LLC you can be a single member or a Multi-member; the way you are taxed comes down to how many members you have.
*What are the tax responsibilities for a single member LLC?
Single member LLC will be taxed as a sole proprietorship. The LLC’s net income, expenses and income as a whole is prepared via the Schedule C. The net income of the business is added to the personal tax return of the owner.
NOTE: A single member LLC can choose to be a disregarded entity when it comes to income tax, so the LLC and its owner can be seen as separate entities. This decision is made by the LLC’s owner.
*What are the tax responsibilities for a multi-member LLC?
Multi-member LLCs will pay taxes as a partnership.
NOTE: Partnerships are not required to pay their taxes to the IRS, but the individual partners will pay their tax based on their ownership share in the partnership. The partnership will have to file an informational return; that can be done with help form 1065.
Once that is done, the information from the 1065 is used to prepare a Schedule K-1 and the is prepared for each one of the partners.