An LLC In Va Offers The Most Tax Choices

How is an LLC in Va taxed on its income? Thedistributed to the members, the members will be
answer is it depends on how the owners want it to besubject to a second tax on the same income.
taxed. For those starting a Virginia limited liabilityHowever, it is possible that an LLC in Va might find it
company, if you learn requirements, you have one ofbetter to be taxed under the C corporation structure.
three choices for income taxation.If the business is going to have profits immediately, the
PASS THROUGH TAXATIONapplicable C corporation tax rate may be lower than
The first option for tax structure of an LLC in Va isthe rate you would pay on your personal return and so
pass through taxation. Under this option, the Virginiayou could end up paying less tax. If your business is
limited liability company itself does not owe any taxes.going to have a stock option plan or will be providing
The profit of the business is calculated and then thesignificant employee benefits to employees, there may
members of the LLC pay the taxes on such profits. Itbe additional tax deductions you can get under the C
is personal income to them and taxed at their individualcorporation rules.
tax rates.An LLC in Va can also elect an S corporation taxation
The actual mechanism and procedure for payingstructure if the Virginia limited liability company and its
taxes varies based on whether the LLC in Va hasowners meet all the conditions required to qualify.
one member or more than one member. If there isS corporation taxation offers a single layer of taxation
only one owner, the IRS disregards the Virginia limitedsimilar to partnership/pass through taxation.
liability company as its own person and the singleIt became popular for corporate entities because they
member pays for the taxes on the business income.do not have the option of regular pass through
For an LLC that has more than one owner, thetaxation.
partnership tax section of the Internal Revenue CodeMany owners of an LLC in Va do not choose S
governs the taxation. This section still provides for acorporation taxation because of the onerous
single layer of taxation with the same end resultrequirements and the fear that if one requirement is
where the members pay the tax on their own returns.not met, even inadvertently as the business evolves,
However, there are additional reporting requirementsthe business could be found liable for significant
as compared to a single member LLC. The Virginiataxation and penalties.
limited liability company must prepare an informationThere is one benefit of S corporation taxation over
return known as a Form 1065 and file it with thethe default pass through taxation for a Virginia limited
Internal Revenue Service. Each member receives aliability company. This benefit relates to self
K-1 tax form from the business which sets forth theemployment taxes. There is more opportunity in an S
specific share of business profits and losses that hecorporation tax structure to reduce overall self
she is entitled to.employment taxes owed by the business owners.
CORPORATION TAXATION OPTIONSYour accountant can advise you on the details and
An LLC in Va can also elect to be taxed as either a Cdetermine if there might be an advantage for your
corporation or an S corporation. There are certainbusiness.
forms and certain deadlines to meet. Generally, in orderSUMMARY
to make the election, the required election forms mustIn 1997, the IRS made tax choice decisions easy for an
be prepared and formed within 75 days of formationLLC in Va. The owners can decide from one of three
of the Virginia limited liability company.choices. This is one of many reasons why the Virginia
The C corporation tax structure subjects the businesslimited liability company is now the most common legal
to double taxation. The IRS taxes the LLC itself on anyentity formed for businesses in Virginia.
income the business makes and then if the profits are