LLC Taxation

LLC Taxation

LLC taxation can be complex.  First of all, LLCs do not pay income taxes.  Instead, the income and loss flows through to the members’ personal income tax returns. Single-member LLCs are disregarded entities for IRS tax purposes (unless an S corporation election has been made).   As such, single-member LLCs report the income or loss on Form 1040, Schedule C. Multiple-member LLCs file income tax return Form 1065. However, an LLC may elect S corporation taxation and file federal Form 1120S.

For more details, see IRS Publication 3402, Taxation of Limited Liability Companies:

LLC Income and Loss 

The allocation rules of Internal Revenue Code Section 704(b) apply to an LLC taxed as a partnership (rather than as a sole proprietorship or S corporation).  Generally,  members may allocate income and loss among the members any way they choose to as long as the allocation has substantial economic effect.  For example, members who provide capital to the business can receive a preferential return (similar to interest) or a return of their capital before any distributions to members who do not provide capital.

Due Date for LLC Income Tax Returns

For the 2016 tax year and subsequent years, LLC income tax returns are due and taxes are payable on the 15th day of the third month after the end of the LLC’s fiscal year.

Contact Chicago CPA and attorney to schedule a consult regarding LLC formation and taxation issues.