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Limited Liability Companies (LLC) are a growing trend in startup structure due to their personal liability protection without the bureaucratic red tape. But one big decision to make after choosing the LLC structure for your small business is to decide how your LLC will be taxed. There is flexibility with the LLC which is why it so appealing – all you have to do is choose was federal tax classification suits your company’s needs the best. Mashable wrote a great article on the 4 ways you can tax your LLC and we borrowed some snippets for you to take a look at.
Single-Member LLC as a ‘Disregarded Entity’ – “As the name implies, you need to be the sole owner of the LLC. This classification falls into the ‘pass-through’ taxation category’ — the business itself doesn’t file any tax forms. As the owner of the LLC, you report business income or loss on your personal tax forms.”
Multiple-Member LLC as a Partnership – “For federal tax purposes, if an LLC has two or more members, it will be taxed as a partnership unless it makes an election to be taxed as an S Corp or C Corp.”
LLC as a C Corporation – “If you prefer to keep profits in the company (as opposed to distributing any end-of-the-year profits to owners), a C Corporation would work. In this case, only the company is taxed on the profits; individual owners are not responsible for paying taxes on whatever money stays in the business.”
LLC as an S Corporation – “Individual LLC owners are taxed on their respective shares of the company’s profits (and profits are not subject to self-employment tax).”