An LLC can be taxed in different ways, depending on how it is structured. By default, LLC"s are business entities organized under state law, and each state has its own regulations for entities organized within its jurisdiction.
Depending on the elections made by the LLC and the number of members, the IRS will treat the LLC as either a partnership, a disregarded entity, or a corporation.
For federal income tax purposes, if your LLC has two or more members, it is classified as a partnership and is required to file a partnership return (Form 1065). An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes - so a single member LLC's income and expenses would be reported on Schedule C of your individual tax return Form 1040. In other words, a single member LLC for federal income tax purposes is treated no differently than if you were a sole proprietor.
An LLC with either a single member or multiple members MAY elect to be taxed as a corporation for federal income tax purposes, either as a C corporation or an S Corporation.
So, for income tax purposes, unless you elect with the IRS to be treated differently,
- If you are the only owner of the LLC you will be taxed as a sole proprietor, and report the LLC income and expenses on your personal return, on Schedule C.
- If you have other members of the LLC, your LLC will have to file a partnership tax return, form 1065.
The state of Texas imposes a franchise tax on most LLC's, which is different that the traditional income tax. For more information on the Texas Franchise Tax, see the link here: Texas Franchise Tax overview
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