Taxation Of LLCs

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As tax time looms, if you are an owner of an LLC, it is important to keep in mind certain tax implications. Although you may elect to have your LLC treated as a corporation for income tax purposes, generally an LLC is taxed like a partnership (if your LLC has more than one member) or a sole proprietorship (if you are the sole member). The LLC itself pays no federal income taxes; it is a pass-through entity. As a member, you will report the LLC's profits and losses on your personal income tax return and pay taxes accordingly. Your LLC's operating agreement establishes the percentage of profit and loss to be assigned to each member. Generally these percentages will correlate with the percentage of the business owned by each member. Each member should receive a Schedule K-1 from the LLC, detailing his or her portion of the LLC's profits and losses. A couple of important caveats to highlight - as a member, you are responsible for reporting your share of the LLC's profits, whether or not the LLC actually distributes any of the profits to you. In addition, since each member is considered by the IRS to be a self-employed business owner, each member must make quarterly estimated tax payments to the IRS.

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