Hello and good afternoon, juanagug7!
A new LLC, how exciting! I understand that you want to find out more about how an LLC would be handled for tax purposes to ensure you are reporting this new business income properly.
Filing for the LLC, will be reported differently, depending on the type of LLC that was formed.
- If he is a single member of a limited liability company (LLC), then you would typically report your income and expenses from the business on a Schedule C. The net profit or loss from the LLC would then be carried directly to the front page of your individual 1040.
- If he elects to be taxed as a partnership, he would then have to prepare an annual 1065 partnership tax return. In which case, all income, deductions and credits would be reported on the 1065, and a Schedule K-1 would then be used to pass through this information on to the 1040.
- If he wants he can choose to be taxed as a C-Corporation by filing IRS Form 8832, Then, the business would report all income and deductions on Form 1120 each year and pays the corresponding income tax. If this electiom was made, this would not be passed through or reported on your individual 1040 form, that you normally file, because a C-Corporation, is considered a completely separate entity.
- If he is not a single member LLC, and they elect to be treated as an S-Corporation for tax purposes., then the business' income will be reported to each of the owners, based on their percentage of ownership on a Schedule K-1, 1120-S. Then, this form will be used to report his portion of net profit or loss on the 1040 individual tax return.
Hopefully this helps! For more information about LLC's and taxes, please check out these resources:
Have a great rest of your day!
Terri Lynn, EA
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Terri Lynn
