A Limited Liability Company (LLC) is a partnership with corporate characteristics created by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are providing management flexibility and the benefit of pass-through taxation. Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs, foreign entities, and foreign nationals. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner. However, single member LLC’s are disregarded entities. Therefore, absent a classification change to be treated as a corporation, will be taxed a as sole proprietorship leaving its profits subject to both income and self-employment tax. At the Law Offices of Senen Garcia, P.A., we will help guide you through the process of structuring your LLC to reduce unnecessary tax liability that may occur.
A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.
Considering LLC are a partnership at its core, it generally files partnership return. However, it can file under a different tax filing if the members elect to take such an action. If an LLC elects to be treated differently for tax purposes, it must file Form 8832 to elect to be a different business entity classification from a partnership. An LLC business entity can file a corporation, partnership or sole proprietorship tax return.
A business with at least 2 members will be initially classifed as partnership unless its classifcation is changed.