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Page 23 of 33 |
How is an llc taxed? |
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Usually, it is taxed as a partnership. This means that the LLC pays no federal income taxes. The profits and losses are passed through to the members. Each member reports his or her share of profit or loss on his or his personal tax return.
Some LLCs, however, after consulting with a lawyer or CPA, decide that they would prefer to be taxed like a "C" corporation (a corporation that has not elected "S" corporation status). If the LLC makes that decision, its profits will be subject to the federal income tax. Especially if the business expects to earn profits that can be left in the business for future expansion, this arrangement can save on taxes since the LLC may be taxed at a lower tax rate than its members. Unlike partnership-style taxation, corporate taxation of an LLC is not automatic. You will need to file an election form with the IRS.
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