| Taxation of an LLC in Va is a common question for | | | | not opt for this choice. Double taxation means the |
| those starting an Virginia limited liability company. The | | | | entity itself pays a tax on its profits and then if the |
| good news is that if you know the rules and meet | | | | profits are distributed to its owners, the owners pay |
| certain timing requirements, you can choose how your | | | | another tax on the same profits. |
| Virginia LLC will be taxed for income tax purpose. | | | | Nonetheless, an LLC in Va might find it advantageous |
| TAX CHOICE #1: PASS THROUGH TAXATION | | | | to elect C corporation taxation. The C corporation tax |
| The first tax choice for an LLC in Va is to be taxed | | | | rates may be lower than the personal rates of the |
| as a pass through entity. This means that the legal | | | | owners. Also C corporation taxation can give a |
| entity itself does not pay any income tax on its profits | | | | business some extra tax breaks when it comes to |
| and gains. Instead the profits are passed through to | | | | certain employee benefits. |
| the owners of the Virginia limited liability company and | | | | It is always recommended you seek the advice of |
| paid by the owners on their individual tax returns. | | | | your business accountant if you are contemplating C |
| The process depends on whether the business is | | | | corporation taxation. |
| owned by a single member or by more than one | | | | TAX CHOICE #3: S CORPORATION TAXATION |
| member. With a single member LLC, the legal entity is | | | | The IRS even allows for an LLC in Va to be taxed as |
| disregarded for all tax purposes and the single owner | | | | an S corporation if the business meets all the |
| reports the income on its return as if the business | | | | requirements to qualify for S corporation tax |
| were a sole proprietorship. This is for taxes only. A | | | | treatment. |
| single member LLC in Va still gets all the benefit of a | | | | S corporation taxation is very similar to pass through |
| limited liability company for all other purposes such as | | | | taxation (Choice #1) in that it is a single layer of |
| gaining limited liability protection. | | | | taxation . There are different forms to file with the IRS. |
| For a multi-member business, the partnership tax rules | | | | However, S corporation can be much more |
| of the Internal Revenue Code apply. Same end result | | | | complicated because there is a laundry list of rules and |
| where the owners pay the tax but there are some | | | | restrictions the Virginia limited liability company must |
| additional steps. The business must prepare an | | | | meet and maintain throughout its existence. |
| information return to file with the IRS and then send | | | | Many opt against this because if for some reason, |
| each member a tax form which is known as a K-1 | | | | they inadvertently fail to meet a requirement, they |
| which evidences his/her share of business profits and | | | | could lose the tax status and potentially significant |
| losses. | | | | liabilities can be created. |
| If you want this tax structure, this is the default tax | | | | However, there is one possible advantage of S |
| structure which means there are no elections you or | | | | corporation taxation over pass through partnership or |
| your LLC in Va need to make. | | | | disregarded entity taxation and that is that an LLC in |
| TAX CHOICE #2: C CORPORATION TAXATION | | | | Va that has S corporation tax treatment may be able |
| The second tax choice is to be taxed a C corporation | | | | to pay less in self employment taxes. Talk to you |
| under the Internal Revenue Code. C corporation | | | | accountant if this is something of interest as the rules |
| taxation means double taxation which is why most | | | | can get complex. |
| small businesses who are limited liability companies do | | | | |