If you choose to set up your LLC as a sole proprietor, you’ll have to report whatever profit or loss the business generates on your personal tax return. The table below breaks down four common to pay taxes for an LLC: LLC Taxation Options You can learn more about rules for taxing LLCs from the IRS backgrounder on Form 3402, covering taxation of LLCs. The IRS will automatically tax an LLC as a partnership if it has more than one owner. An LLC with multiple owners can’t choose to be taxed as a sole proprietor, for instance. There are some limitations on the aforementioned choices. You choose how you’ll be taxed by filing IRS Form 8832.

They can choose to be taxed as a sole proprietor, a partnership, an S corporation or a C corporation. Tax Flexibility of an LLCĪn important feature of an LLC is that the Internal Revenue Service (IRS) allows business owners to choose the way their business will be taxed. That’s one of the main tax benefits of an LLC. Clearly, avoiding double taxation can save significant money in the long run.

Then, any distributions to its owners are also taxed as individual income. More specifically, the corporation must pay taxes on its income. This is different from standard C corporations, which are subject to double taxation. Instead, their earnings are passed directly to their owners, who pay taxes on them at their individual income tax rates. These businesses pay no federal income taxes themselves. Sole proprietorships and partnerships also pay taxes as pass-through entities. This describes the way the LLC’s earnings can be passed straight through to the owner or owners, without having to pay corporate federal income taxes first. The key concept associated with the taxation of an LLC is pass-through.

Filing taxes for small business llc