It is a general rule of thumb that taxes are an unavoidable part of every business. And more and more people who intend to start their businesses are in non-stop searching of the best business structure which will help them reduce the amount of paid taxes.
Therefore, an LLC is considered to be one of the most popular business structures for most business owners. Every day, millions of people start their business as an LLC.
If you have also decided to implement LLC as your business structure, then there are several facts concerning this business structure that you should be aware of. So, Prestige Auditors is coming up with several facts that every entrepreneur has to know about LLC taxes.
Fact # 1 There Is No Need for Corporate Income Tax Returns!
If you are an owner of LLC, then you are exempt from paying your own corporate income taxes. All you need to do is to report both profits and losses within your business on your personal returns. Additionally, this option provides you with an opportunity to avoid double taxation.
Fact # 2 You Can Choose How to Break off the Shared Tax Burden!
As an LLC member, you are provided with an opportunity to choose the way to split up taxes between shareholders. So, you can decide with other members the entire process of taxation in order to understand how much each of the members has to pay.
Fact # 3 Like Sole Proprietorships
Generally, single member LLCs have lots of similarities with sole proprietorships when it comes to taxation. Since the only step that you have to implement is to claim the net income by using a form Schedule C. Then, you have to pass that information to a Form 1040 when you file your individual tax return.
Fact # 4 As an LLC Owner You Have to Pay Self-Employment Tax!
It is wise to know that the members of LLC are not considered as the employees of the company. In the eyes of the IRS, they are self-employed, hence they are responsible for self-employed tax.
Fact # 5
LLCs Have to Acquire an EIN
If you have employees who have to open up bank accounts, then you will need an EIN. Don’t panic, since the process of obtaining an EIN is pretty simple. All you need to do is go to the IRS official website and file the application. Or, you can contact Prestige Auditors and we will gladly help you to obtain it easier and faster.
Fact # 6 The Owner of LLC Must Pay Estimated Taxes!
Unfortunately, the self-employed tax is not the only tax that LLC owners have to pay. Another type of taxes that they can face is an estimated tax. So, each of the members has to pay nearly 90% of their tax obligation through estimated taxes. If you avoid paying estimated taxes, then you have to pay estimated taxes fees.
Fact # 7 Multi-Member LLCs Are Taxed Like Partnerships
Generally, multi-member LLCs are taxed like partnerships. So, net income passes through the entity of each owner who is in charge of paying their share of taxes. LLCs which have several members have to submit a Form 1065 to the IRS, in this case, the Internal Revenue Service will know how much to expect from each shareholder.
Fact # 8 LLCs May Elect C Corporation or S Corporation Taxation
If you are an LLC member then you are provided with lots of chances to choose the best options which suit your business more. So, if you wish your business can be taxed as an S corporation or C corporation, you can easily choose any of them. However, most businesses prefer to be taxed as a C corporation, since there are not many restrictions.
Fact # 9 If You Form Your LLC In Another State, You Should Still Pay Taxes!
If you follow our blogs, you may probably know that there are several states which can be considered as the perfect place for running a business because of lack of business income taxes.
However, this concept doesn’t fly when it comes to forming an LLC, since you still have to pay taxes based on the state where you live. If you consider LLC as a structure of your business, then you can also read this blog.
If you decide to start a new business, then you have to devote a considerable amount of time in order to understand its implications. But if you have already intended to start a business as an LLC, then there are several important aspects that you should be aware of.
Keep our nine facts in mind in order to avoid any issues within your operation.
If you still have any concerns concerning which business structure to choose, then contact Prestige Auditors and we will provide you with answers to all your questions. Moreover, we will help you choose the best business structure, based on several important aspects. We also recommend that you go to our website, since there is a ton of information concerning businesses, and more.
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