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