An LLC, or limited liability company, is a business structure created by individual states that has features similar to both a corporation and a partnership. Like a corporation, an LLC member has limited liability for the debts and actions of the LLC. Like a partnership, income and losses are passed through to the owners, rather than being the responsibility of the LLC itself. As such, the Internal Revenue Service does not recognize an LLC as a separate business entity, and LLC owners must categorize their company as a corporation, a partnership or a sole proprietorship for federal tax-filing purposes.
Things You'll Need
- Limited liability company
- IRS tax forms and schedules
Determine your filing status. If you are a single-member LLC, you can file with the IRS as a corporation or sole proprietor but not as a partnership. If you are a multiple-member LLC, you can file as a partnership or a corporation. You may want to consult with a tax adviser to determine what filing status offers you the most tax advantages.
Follow IRS regulations regarding how to correctly file LLC forms. If you are filing an individual LLC return, you should report LLC income and expenses directly on Form 1040 through the use of the appropriate schedule or schedules: C, "Profit or Loss from Business"; E, "Supplemental Income and Loss"; and F, "Profit or Loss from Farming." If you are filing your LLC taxes as a corporation, you should report LLC income and expenses on the corporate return, which is usually Form 1120 or Form 1120S, "U.S. Corporation Income Tax Return." If your LLC has more than one member, you must file a partnership return using Form 1065, "U.S. Return of Partnership Income."
Verify whether you have to pay self-employment taxes. Most members filing schedules C or E have to pay self-employment taxes. Members filing partnership returns generally have to pay self-employment taxes on their share of partnership earnings, although members classified as limited partners pay self-employment tax only if the LLC pays them for services.