Key considerations for LLC taxation

[cmallow17]

Hello!

What are some key considerations when deciding how to tax a single-member LLC, either as a disregarded entity, a C-corp, or an S-corp?

Thanks!

[rschule1]

Hi There:

For most businesses the C Corp is currently rarely chosen because:

Disadvantages of a C Corporation

• Double taxation. It's inevitable as revenue is taxed at the company level and again as shareholder dividends.
• Expensive to start. There are a lot of fees that come with filing the Articles of Incorporation. ...
• Regulations and formalities. ...
• No deduction of corporate losses.

Here's good article from Money which compares and contrasts LLC V. Corps. See link below:

https://money.com/llc-versus-corporation/ 

[GuodaL]

Hi cmallow17,

That is a good question.

The first step you should take would be to seek an in-person consultation with a local tax professional in choosing the right entity type.

If you’re the single member of a limited liability company (LLC), you’ll typically file your business tax information on Schedule C and report the profit or loss from your business on Form 1040.

If you elect to be taxed as a corporation by filing IRS Form 8832, the default is to be treated as a C-Corporation. In this case, the business reports all income and deductions on Form 1120 each year and pays the corresponding income tax.

You can choose to be treated as an S-Corporation by filing IRS Form 2553. This passes-through the business' income to the owners on a Schedule K-1.

For more details on LLC filing, please check out this article.

https://turbotax.intuit.com/tax-tips/small-business-taxes/llc-tax-filing-rules/L39E29kPR

Please seek professional advice prior to making a decision on choosing entities for tax purposes.

Hope this answers your question. Feel free to reply if you have additional questions.

[mdhubel]

Given your answer, which is excellent, the phrase "pass through" has tax implications.

Does it mean that an LLC is not considered pass through? And if that's the case, does it mean that to take advantage of the current lower tax rate for pass through income, requires electing to be an "S" corp?