LLC Tax – You Have Many Choices

December 28, 2011 by  Filed under: Taxes 

There’s No Such Thing as a Limited Liability Corporation or a Limited Liability Partnership.

There’s plenty of confusion with regards to LLC tax. While corporations and partnerships have their own tax structures within the IRS code, the LLC doesn’t. An LLC is actually a unique business structure called a Limited Liability Company. The confusion comes when it is time for the LLC taxation.

At the time the LLC structure was created in Wyoming, those who were encouraging the Wyoming legislation asked just how the IRS wanted it taxed. It took almost 20 years for the IRS to give the response. The IRS might well have created another section of the code explaining specific taxation rules relating to the LLC, but they didn’t. For the reason that the LLC is in reality a defective corporation, the IRS didn’t know whether they should tax it as a corporation or partnership. Then again, it’s not a corporation or a partnership. The IRS simply ruled that they would let the owners of the LLC select how get it taxed.

Your LLC and Taxes
Now how should you really tackle your LLC and Taxes? First take into account your options as a partnership or a corporation. In a partnership, partners divide up the profits and losses dependant on their percentage ownership within the partnership, and so they pay their own individual taxes. The company gives all of the partners a K1 telling them what their percentage of the profit or loss is.

Corporations actually have two choices in the tax system. If you have a corporation, you can be taxed under subchapter C of the IRS code or you can be taxed under subchapter S of the IRS code. You are allowed to choose which code section you would like to be taxed under.

Chapter C in the IRS code taxes the traditional corporation like Bank of America, and all the big boys. The corporation pays its taxes straight to the IRS. Subchapter S of the IRS code taxes the corporation similar to a partnership would be taxed. The S corporation has to file a tax return, however the specific earnings or losses “pass through” on a K1 to the owners of the corporation and consequently are actually “recognized” by the owners pro rata based on their ownership interests.

Cutting down on LLC Taxation
Numerous LLC owners rarely file the LLC taxation election form. When you have an LLC and do nothing at all, the LLC will be taxed just like a sole proprietorship, if there’s just one owner. Where there are different owners, your LLC can be taxed as a partnership. In the event you ffile the correct paperwork with the IRS, you’ll be able to elect to be taxed just like a corporation (either C or S). A person may be a single member (one owner) LLC and still make your election to be taxed like a corporation. The important point is: it is possible to make a decision on the best way you would like your LLC to be taxed. How you ultimately choose could help you save taxes!

The tax forms designed to classify your LLC as a corporation should be filed in a precise order. The problem is you just can’t file the forms all at one time. You’ll discover strict time constraints on the filings, and they need to be filed at specific intervals.

The Most Beneficial LLC Tax Election
If you ever need help choosing which LLC tax election you really should make or if you should know the best way to file the form, evaluate the LLC Wizard. There’s an hour audio discussion of the benefits and drawbacks of taxing your LLC like a disregarded entity, partnership, an S corporation, or a C corporation. It takes you through each one of the tax forms that need to be filed and the way get it done. There is really a step-by step discussion that steps through the form one space at a time, and examines the options which enables you to apply for your LLC’s tax ID number and qualify it as a corporation, C or S.

It is remarkable the total number of individuals who leave things to their attorney or accountant and end up with a surprise tax bill for tens of thousands of dollars more than they expected. Somebody neglected to file all the papers or filed them incorrectly. The LLC Wizard holds your hand entirely. You can take control of your LLC taxes.


Attorney Lee R. Phillips is a nationally recognized expert in financial and estate planning. Lee is licensed to practice law before the United States Supreme Court and has held licenses in real estate, insurance and securities. His company specializes in solving asset protection and tax problems. Lee is an engaging, dynamic speaker and has spoken to over a half million people throughout the United States, Canada and the Pacific Rim helping them understand the law and how to use it to their benefit. His ability to present critical information in a clear manner has made him a highly sought after guest on many radio and television shows. Lee is an author of nine books, including Guaranteed Millionaire, which he co-authored with his wife Kristy, who is also an attorney. Lee writes a blog and answers readers questions at

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