An LLC (Limited Liability Company) is a popular business structure that combines the liability protection of a corporation with the tax flexibility of a partnership or sole proprietorship. Unlike a corporation, an LLC is not a separate tax entity—instead, the IRS treats it as a "pass-through" entity by default, meaning the business income and losses pass through to the owners' personal tax returns. This avoids double taxation but requires careful compliance.

Single-Member LLC

A single-member LLC (SMLLC) has one owner. For federal tax purposes, the IRS disregards it as separate from its owner by default. This means:

• The business itself does not file a separate tax return.
• All income and expenses are reported on the owner’s personal tax return using Schedule C (Form 1040).
• Profits are subject to self-employment tax (Social Security and Medicare) in addition to income tax.
• The owner may need to make quarterly estimated tax payments.

Example: A freelance graphic designer operating as an SMLLC reports business income on Schedule C. Net profit is transferred to Form 1040 and taxed at their individual rate.

Multi-Member LLC

A multi-member LLC has two or more owners. By default, it is treated as a partnership for tax purposes:

• The LLC must file an annual Form 1065 (U.S. Return of Partnership Income).
• Each member receives a Schedule K-1 showing their share of profits/losses.
• Members report their K-1 amounts on their personal tax returns (Form 1040) and pay tax at their individual rates.
• Like SMLLCs, members are subject to self-employment tax on their distributive share of income.

Tax Classifications (Check-the-Box Rules)

An LLC’s tax treatment is not fixed—owners can elect how they want to be taxed:

• Disregarded Entity (Default for SMLLC)
• Treated as a sole proprietorship.
• Partnership (Default for Multi-Member LLC)
• Files Form 1065; pass-through taxation.

S Corporation

Must file Form 2553 to elect S Corp status. Owners can be employees, receive a salary, and take additional profits as distributions (which may save on self-employment taxes). Files Form 1120-S annually and issues K-1s.

C Corporation

Elect by filing Form 8832. The LLC files Form 1120 and pays corporate income tax. Profits distributed as dividends are taxed again on personal returns (double taxation).

Advantages of LLC Taxation

• Pass-Through Taxation: Avoids double taxation (unless electing C Corp status).
• Flexibility: Owners can choose the most advantageous tax classification.
• Limited Liability: Personal assets are generally protected from business debts.
• Profit Distribution Flexibility: Partnerships and S Corps can allocate profits/losses disproportionately (if outlined in the operating agreement).
• Deductible Business Expenses: Ordinary and necessary business expenses reduce taxable income.

What Forms We File

Depending on your LLC’s tax classification, we handle all required filings:

Single-Member LLC (Default):

• Schedule C attached to owner’s Form 1040
• Possible Schedule SE (self-employment tax)

Multi-Member LLC (Partnership Default):

• Form 1065 (Partnership Return)
• Schedule K-1 for each member

LLC Electing S Corporation:

• Form 1120-S (S Corporation Return)
• Schedule K-1 for each shareholder
• Form 941/940 for payroll tax filings (if owners are on payroll)

LLC Electing C Corporation:

• Form 1120 (Corporate Income Tax Return)

We also assist with:

• State LLC annual reports and taxes
• Quarterly estimated tax payments
• Sales tax filings (if applicable)
• Personal property tax returns

Need Help? Choosing the right tax classification and staying compliant is critical. Contact us to structure your LLC for optimal tax efficiency and ensure accurate, timely filing.