It depends on what type of LLC you have.
Single Member LLC - This is a business with one owner, and only own owner. There are no other investors or share holders. This type of business is considered a “disregarded entity” by the IRS. All income and expenses for the business are reported on SCH C as a physical part of the owner’s personal tax return. Again, a single member LLC has only own owner. This type of business is required to be registered at the state level, weather that state taxes personal income or not. Additionally, this type of business may also be required to obtain an Occupational License for the county(s), city(s) or other more localized jurisdictions within that state, in which the business will be operating in.
Multi-Member LLC – This is a business with more than one owner. It’s also the exact same as a Partnership (for tax purposes) This type of business also has to register at the state level, and may also be required to obtain an Occupational License from more localized jurisdictions within the state, in which that business will operate. This type of business will file its own physically separate tax return with the IRS (and state if applicable) referred to as a Partnership Return, on IRS Form 1065. When completing the 1065 (using TurboTax Business) the business will issue each individual owner a K-1 reporting the income (or loss) of each owner. Each owner will use this K-1 to complete their personal return. So an owner can’t even start their personal return, until after the 1065 Partnership Return has been complete, filed, and all K-1’s issued to all owners.
In the community property states of Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin if you have a multi-member LLC where there are only two owners, those two owners are legally married to each other, and those two owners will be filing a joint 1040 tax return, they have the option of splitting all business income and expenses down the middle and each partner reporting their share of the business income/expenses on a separate SCH C for each tax filer on the joint return. That means your joint 1040 return will have two SCH C’s included with it – one for each owner. But this can present its own problems in the event of divorce, separation. The issues can become even more compounded upon the death of one of the owners. If that deceased owner’s will does not pass all assets to the surviving partner, then that surviving partner can find themselves in a tax hell, not to mention the problems that can arise with the “new” owner or owners.
LLC “Like an S-Corp” – For tax purposes only (and I reiterate: FOR TAX PURPOSES ONLY!!!!!) one can elect to have the IRS treat their single member LLC or multi-member LLC “like an S-Corp” ****FOR TAX PURPOSES ONLY!!!!!**** This means your business is treated by the IRS like, and considered to be a physically separate taxable entity. This is accomplished by filing IRS Form 2553 – Election by Small Business Corporation. This allows you to act as if your single member LLC or multi-member LLC is an S-Corp. But understand that if you want the IRS to treat your LLC like an S-Corp, then the business “must” act like an S-Corp, and follow all the laws, rules and regulations required of an S-Corp by whichever state your LLC is registered in. All business income and expenses is reported on IRS Form 1120-S – Income Tax Return For An S-Corporation. The S-Corp will then issue each owner, investor and/or shareholder a K-1 which they will need before they can even start their personal tax return. Unlike a single member LLC which is considered a disregarded entity for tax purposes, an LLC that has filed form 2553 “is” considered and treated like a separately taxable entity.
LLC “Like a C-Corp” – For tax purposes only (and I reintereate: FOR TAX PURPOSES ONLY!!!!!) one can elect to the the IRS treat their single member LLC or multi-member LLC “like a C-Corp” ****FOR TAX PURPOSES ONLY!!!!!**** This means your business is treated like and considered to be a physically separate taxable entity. This is accomplished by filing IRS Form 8832 – Entity Classification Election. This allows you to act as if your single member LLC or multi-member LLC is a Corp. But understand that if you want the IRS to treat your LLC like a C-Corp, then the business “must” act like a C-Corp and follow all the laws, rules and reguations required of a C-Corp by whichever state your LLC is registered in. All business income and expenses is reported on IRS Form 1120 – IU.S. Corporation Income Tax Return. A C-Corp does not issue a K-1. Instead, the owner(s) would be employees of the corporation and issued a W-2.
