LLC Taxes

[juanagug7]

My husband opened an LLC this year. Do you have any recommendations to ensure that we file our taxes correctly? We currently file married jointly and we both work.

[tagteam]

See https://turbotax.intuit.com/tax-tips/small-business-taxes/limited-liability-company-taxes/L5TDDlstC

[KNDavis]

Hi juanagug7,

I'll assume the LLC is owned only by your husband, which is called a single-member LLC. 

When you have a single-member LLC, you report the revenues and expenses on your individual income tax return, Form 1040, using Schedule C.  You'll pay tax on the net profit, or if you have a loss, it can reduce your other income.  In addition to income tax, you'll owe self-employment tax on the net profit for the LLC.  Self-employment taxes are 15.3% of the net profit.  

You'll want to keep good business records of your income and expenses so you have the information necessary to complete the Schedule C.  Using software like Quickbooks can make tax time easier.  

If you expect the LLC to generate a net profit, which will result in additional taxes owed, you may want to consider making quarterly estimated tax payments to avoid underpayment penalties.  Depending on how large a profit you expect, you could also increase your withholding with your employer to cover the additional taxes owed for the LLC.

If I've assumed incorrectly, and there are more than one LLC member/owner, then you'll need to treat it as a partnership and file a partnership tax return before completing your individual income tax return.   TurboTax Business can help with a Partnership tax return.

I hope this gives you more information about how having an LLC will change your tax situation.

Sincerely,

Kimberly, CPA for over 30 years

@juanagug7 

[Terri Lynn]

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:

• TurboTax: Limited Liability Company's and Taxes  
• TurboTax: LLC Tax Filing Rules 
• How to file small business taxes? 
• Start-Up Business Tax Tips 
• Can I convert my LLC while doing taxes? 

Have a great rest of your day!

Terri Lynn, EA

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