How do taxes work for an llc

Why would an LLC elect to be taxed as an S corporation instead of a sole proprietorship or partnership? Income Tax Return for an S corporation. When you change business structures, it means all new filing requirements for the IRS, which means changing up how you do your bookkeeping. With Bench, your expert bookkeeping team makes sure you never miss a step.

Learn more. Switching your business structure to an LLC may seem like a surefire way to reduce your taxes. But LLCs are sometimes subject to additional annual fees and state franchise taxes.

LLCs that opt to be treated as pass-through entities avoid double taxation. Instead of getting taxed when they earn income and distribute profits to shareholders, LLCs pass their gains or losses onto their owners and are only taxed once, which can result in a lower tax bill. This means that if the LLC ever goes under or gets sued, your personal assets are off-limits.

Like regular corporations, S-corporation employee-owners are also treated as W-2 employees and have taxes taken out of their paychecks. Owners who do not provide services to the company are not treated as W-2 employees. With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues.

By Alia Nikolakopulos. LLC vs. Treated as Partnership LLCs that have two or more members and have not elected to be treated as a corporation for tax purposes are taxed as a partnership by the IRS. While this deduction will benefit many business owners, there are a few details to consider. While the default tax treatment for an LLC is pass-through taxation, owners may elect to be taxed as C corporations.

This phenomenon is referred to as double taxation. While pass-through entities are very attractive business options, electing to be taxed as a C corporation can offer a number of benefits to an LLC:. Skip Ahead To:. What is Pass-Through Taxation?

Meet a Business Accountant. Pros and Cons of Pass-Through Taxation Pass-through entities offer their owners two main benefits: The structure is simple and allows owners to combine their personal and business income for tax purposes. This can be particularly helpful for smaller businesses looking to streamline their operations.

Owners of personal service businesses who pass these thresholds are not eligible for any deduction. Powers of Attorney for LLCs. Business Structures. Page Last Reviewed or Updated: Mar Share Facebook Twitter Linkedin Print.