Summary of Partnership Services
We provide income tax preparation and tax planning for limited liability companies (LLCs). From an income tax prespective, limitied liability companies can be classified in one of four ways: single member LLCs, partnership, C-corporation, and S-corporation. The choice of classification is basically left to the owner(s) to decided. Each choice has different tax reporting and ratification for the owner(s). Below, we will summarize the four LLC tax classifications and list some ways we can assist in the formation and operation of an LLC.
Four LLC Classifications
LLCs can be classified in the following four ways for income tax reporting purposes.
Single Member LLC
Single member LLCs have the option to be taxed similiar to a sole proprietorship, as an S-Corporation, or as a C-Corporation. In this section, we briefly discuss an LLC being taxed similiar to a sole proprietorship.
A single member LLC not making an election to be treated as a corporation for tax purposes report its LLC financial activity on the owner’s IRS Form 1040 Schedule C. With this LLC tax treatment, the LLC books will be prepared to determine the income and expenses as if the LLC was going to file an income tax return. However, all the financial activity will go on the owner’s personal income tax return. The single member owner will then pay any required income taxes on the profit and self-employment taxes.
LLC Taxed As Partnership
An LLC with two or more members has the option to be taxed as a partnership, as an S-Corporation, or as a C-Corporation. Here, we discussed the LLC being treated as a partnership.
An LLC taxed as a partnership is called a pass-through entity. As a pass-through entity, the LLC will file its own partnersip income tax return (IRS Form 1065). Assuming the LLC files IRS Form 1065 in a timely manner, there is no income taxes due at the federal entity level for the LLC. All the LLC income is pass-through to its members via a Schedule K-1.
The members then use the Schedule K-1 to report their share of the partnership income on their personal income tax returns (IRS Form 1040).
Note 1: If the member worked in the LLC, SE Taxes (Self-Employment) will be due on the income that the working member received from the LLC.
Note 2: Althrough no taxes are due on a timely filed LLC tax return, the IRS fines heavily for late filed LLC income tax returns. The fine is $90 per month (12 month maximum) times the number of LLC members.
Note 3: Also, for not providing Schedule K-1s to parnters, the LLC could face penalty of $50 per Schedule K-1 up to a maximum of $100,000 if not intentionally. If intentionally, there is not a maximum fine limit.
LLC Tax As C-Corporation
An LLC with any number of members can elect to be taxed as a C-Corporation. An LLC taxed as a C-Corporation will file a corporate income tax return (IRS Form 1120).
Please see the corporate income tax summary section of our site for a brief discussion of corporate income taxes.
Note: The income of an LLC taxed as a corporation maybe subjected to double taxation once the LLC member takes the income. By double taxation, we are referring to the income being taxed both at the corporation level and at the individual taxpayer level.
LLC Tax As S-Corporation
An LLC with any number of members can elect to be taxed as an S-Corporation. The LLC must first elect to be treated as a C-Corporation. Then, as a C-corporation, the LLC makes an election to be treated as an S-Corporation. An LLC taxed as an S-Corporation will report its income on an S-Corporation income tax return (IRS Form 1120s).
For more information on taxation of S-Corporation, please see our S-Corpration tax summary section on our site.
Balancing the LLC Tax Choices
Owners of LLCs have a few options in terms of income tax treatement. There are many factors that can affect the tax treatment choice of an LLC. We recommend that a qualified tax professional in the area of business entity taxation should be consulted
We assist LLC owners in weighing the pros and cons of each option for their situation. Below, we have presented a list of other areas we assist LLC owners.
Ways We Help LLC Owners
We assist LLC owners and members in the following ways:
- We assist in the structuring and formation of limited liability companies.
- We train owners and members in the operation and use of limited liability companies.
- We provide bookkeeping services to LLCs.
- We assist with tracking and keeping up with members’ basis in the LLC.
- We assist with members entering and leaving the LLC.
- We prepare LLC income tax returns.
- We issue Schedule K-1′s (K-1′s) to members in the LLC.
- We assist the individual members with preparing their individual income tax returns.
- We assist with dissolving and winding up limited liability companies.
- We provide tax planning to LLCs and members.
- We work with and assist the LLC attorney in accomplishing specific objectives with the LLC.
For prices for our LLC income tax servcies, please visit our price section.