Tax Forms

Tax Forms

When starting an LLC, there is just one federal tax form that most companies need to file. If you elect to be taxed as a corporation, you will file a second form, and you may file tax forms with your state taxing authority.

Taxpayer Identification Number

Most limited liability companies must obtain a taxpayer identification number, also called an employer identification number (EIN)—the business equivalent of a Social Security number—prior to opening a bank account. This is done by filing IRS Form SS-4.

Entity Classification Election (IRS Form 8832)

IRS Form 8832 was issued by the IRS to allow LLCs to choose their tax status. It is basically a choice between partnership taxation and corporate taxation. For a single-member LLC, it is a choice between sole proprietorship taxation and corporate taxation.

The difference between the two types of taxation is that sole proprietorships and partnerships are not taxed at all, while corporations are treated like separate taxpayers. A sole proprietorship or partnership just reports its income and expenses; whereas the proprietor or partners report the net profit or loss on their personal tax returns. A corporation files a tax return and pays tax on any profits. If it distributes any of the profits to the members, those profits are taxed again. However, an LLC can avoid double taxation if it opts for corporation taxation and chooses to be taxed as an S corporation. To do this you need to file IRS Form 8832 and Form 2553 within seventy-five days of forming an LLC.

Another way around the double taxation is if all of the profits can be paid to the members as salaries, thus making the profits deductible. The corporation then has no profit on which to pay tax. The problem arises when the company makes more money than would be reasonable to pay as salaries. The IRS can then impose extra corporate taxation on the excess amounts.

Another way around double taxation is for the LLC to opt for corporate taxation and then select S corporation status. To do so, you would file Form 8832 and Form 2553 within seventy-five days of forming your LLC.

State Taxes

Check with a tax professional regarding your state's tax laws for LLCs. Generally, if you will be collecting sales tax or will pay wages subject to unemployment tax, you may need to register with any state in which you sell goods or have employees.