| Limited Liability Company taxation can be confusing to | | | | separate 1065 partnership form, and then the individual |
| new owners, but understanding the selection type of | | | | calculate their self-employment tax bills on their share |
| the LLC will simplify tax questions. An LLC with one | | | | of the profits which accompanies their 1040 return. |
| owner can be taxed like a sole proprietorship, | | | | LLC as a C-corporation are not subject to self |
| C-Corporation, or even a S-Corporation. Ultimately, | | | | employment tax. Profits are subject to corporate |
| understanding how a LLC is treated for income tax | | | | income tax and are reported on the LLC's 1120 |
| determines how the entity is taxed. Community | | | | corporate return. If dividends are distributed they are |
| property states allow for a husband and wife to be | | | | subject to 15% qualifying dividend tax rate. |
| treated as a single member LLC. When an LLC has | | | | C-Corporations are subject to payroll taxes on wages |
| multiple owners a partnership is the default | | | | paid to members. |
| classification, but still have the right to be a S or C | | | | LLC as a S-corporation are not subject to neither self |
| corporation. | | | | employment tax or corporate income tax. Form 1120 |
| One of the major downsides of a Limited Liability | | | | needs to be filed and through this return LLC owner's |
| Company is payroll and self employment taxes. Single | | | | get taxed at their respective corporate profits. The |
| member LLC pays self employment taxes on its | | | | S-corporation must pay reasonable salary which the |
| profits, which goes on schedule C tax form. That is for | | | | S-corporations will owe payroll taxes. |
| active trade business, but a passive LLC (Real Estate | | | | Understanding how each entity is taxed will help with |
| Investing) does not pay self employment tax on its | | | | the right selection of what the LLC should be; in turn |
| profits, but reports its passive income on schedule E. | | | | determining how it will be taxed. |
| Multiple member LLC as a partnership engaged in | | | | This is not advice. Each individual should consult their |
| active business pay self employment taxes on their | | | | CPA or Attorney. |
| shares of the profit. LLC reports business income on a | | | | |