File Federal Taxes Online: Federal Taxes - Single and Multi Owner LLC TaxesTip! Generally, the

Federal Taxes - Single and Multi Owner LLC TaxesTip! Generally, the

Tuesday, March 27, 2007

Single and Multi Owner LLC Taxes

Tip! Generally, the four types of taxes include service fees and charges; franchise tax or surcharges; sales use or special taxes; and federal excise tax.

LLC owners must report their business income and losses on their personal income tax returns

Similar to a sole proprietorship or partnership you must report your income to the IRS. An LLC is not a separate tax entity like a corporation. The IRS considers Limited Liability Company a �pass through entity." Earnings are taxed only once. Profits and losses of the LLC �pass through' the business to the LLC owners. Owners (members) must then report this information on their personal tax returns. The good news is the LLC itself does not pay federal income taxes. But some states do charge LLCs an annual state tax.

Tip! Employ family members. Paying a salary to members of your family is one way to reduce taxes.

Income taxes and the number of members in your LLC

The number of members in your limited liability company determines how it is taxed by the IRS.

Single-Owner Limited Liability Company Taxes:

If you are the sole owner of your LLC then the IRS taxes you much the same as it would a sole proprietorship. All profits and losses must be reported on your 1040 tax return (on the Schedule C attachment). You can not avoid taxes by leaving your money in the LLC's bank account. All profits in the LLC's accounts must be reported.

Multi-owner Limited Liability Company Taxes:

If there is more than one member of your LLC the IRS taxes you much the same as it would a partnership. Again the LLC itself does not pay tax on profits. Individual members must report their share of profits on Schedule E and attach it to their 1040 form. Each member pays taxes on their distributive share of company profits, as stated in the LLC operating agreement. Again, the LLC itself is not taxed by the IRS although there may be an annual state tax, depending on which state you are in.

Tip! Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don't pay in at least 90% of your current year taxes or 100% of last year's tax liability.

State Taxation of Limited Liability Companies:

Although the IRS does not tax LLCs, California levies an annual minimun franchise tax of $800.00, they expect this payment within three months of forming your LLC and kindly send you a bill so you don't forget. Wyoming levies an annual State tax on of $100.00; California requires an annual List of Officers or Members filing, fee of $100.00; Delaware levies an annual franchise tax of $30.00.

Dennis Gardener is an assistant editor at small-business-assistance.

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