You filed Limited Liability Corporation (LLC) paperwork to the state for your business. It was easy to do and now you have a business. Now what? The tax obligations for your new business LLC will depend on a few factors.
Single Member LLC
You have a Single Member LLC if you are the only member in the LLC. The IRS will treat your business as a “disregarded entity” for federal tax purposes. This means your business will be reported on Form 1040 using schedule C, Profit or Loss from Business. You do have the option to elect to have your business be taxed as an S Corporation. If you elect to be taxed as an S Corporation, then your business must follow the filing requirements for S Corporations. Contact us to review the tax consequences to consider when making the decision to elect having your LLC be taxed as an S Corporation.
You have a Multiple-Member LLC if your business was started by two or more people and those people are members of the LLC. A Multiple-Member LLC is automatically treated as a Partnership. The business will report all income and profits on the Partnership return and must follow the filing requirements for Partnerships. You do have the option to elect to have the Multiple-Member LLC be taxed as an S Corporation. If the business elects to be taxed as an S Corporation, then your business must follow the filing requirements for S Corporations. Contact us to review the tax consequences to consider when making the decision to elect having your Multiple-Member LLC be taxed as an S Corporation.
You established an LLC for legal separation. You wanted to separate you and your business. We can provide you recommendations to insure that the accounting aspects of your business are separated from you personally. However, we do recommend that you seek legal advice to insure you implement policies and procedures for proper legal separation. For example establishing By-laws and an operating agreement, getting business cards, setting up a business bank account, and purchasing letters with business letterhead.
You now have a general understanding on the tax implications for establishing a Limited Liability Corporation. However, the tax laws on LLCs can be complicated and confusing. We can assist you further on figuring out the best solution for your business, call ALG Tax Solutions 855-MI-Tax-Help (855-648-2943) or provide your contact information online.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.