vp911

Does anybody know how taxes for an LLC actually work? I have read several things recently of which some say that the company has to file taxes and then any money you take home to yourself (the owner) pays income tax ontop of that. Then, I have read that the LLC shields the owner from liability - but taxes are done completely on the owners or members 1040 - so only taxed once. Anybody know for sure? How would this work?

moomaster_99

I thought that when you create an entity like an LLC, you are creating another body to be taxed. You are paid through the entity, therefore, what you are paid....you are taxed. Any profit the LLC makes is taxed, but if you 'reinvest' the profit...and make 0 income, you have no taxes. Also, your perks are that you can expense things back to the business, as well.The Limited Liability Corporation is designed to protect you from taking the brunt of a lawsuit....as a sole proprietor would (all assets available for forfeiture).


Disclaimer: I am not a tax professional and any advice given is all hearsay .

vp911

According to a document I just found on the IRS website, you can have the LLC taxed as a corporation or you can opt to have the profits/losses taxed to the members as a sole proprietorship would. It is up to you. I could be mis-understanding the document, so here it is:

http://www.irs.gov/businesses/small/...137016,00.html

Here is the PDF file with other information: http://www.irs.gov/pub/irs-pdf/p3402.pdf

moomaster_99

Interesting...what business are you applying for the LLC?

doopstr

I do mine on Schedule C (i think that's the schedule) of my personal 1040.

soopa

LLC as a sole proprietorship is a losing proposition no matter which way you choose to be taxed.

In one instance, you can be paying very expensive personal income tax on corporate earnings not intended for personal use.

In the other instance, LLC's carry a greater tax burden than other forms of corporations (such as an S-Corp).

Unless you have a particular reason for going with an LLC, there is no reason to if you are the sole proprietor.

vp911

I just assumed (big assumption) that using an LLC and then filing under personal taxes would make things cheaper and easier come time to file taxes.

If setting up a S-corporation - wouldn't I have to write paychecks and then pay taxes on that as the business and then my personal income? Thanks Adam.

soopa

Yes, you have to write paychecks, but the corporation does not pay tax on that.

In fact, an S-Corp pays almost no tax on its income.

You will simply pay income tax on the earnings you distribute to yourself.

soopa

The best thing you can do for yourself is find a good accountant that can set you straight.

You'll need one once you start filing taxes for the corporation anyway (retarded amount of paperwork) so you may as well get one in on the ground level.

All-in-all, having an accountant sit with me for probably 3 hours, figure out what best fit my profile (current tax situation, projected income, goals, etc) and then make the actual filing to become a corporation cost me about $600.

It's probably the best $600 I've ever spent. Since then, I've used the same accountant for all my tax needs and questions. It's great because he knows the ins-and-outs of my tax scenario since hes been with me since the get go.

vp911

Thank you Adam. I will look around for a good accountant in the area.