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.

  • Limited Liability Company: Introduction
    For hundreds of years, the three choices of business entity were sole proprietorship, partnership and corporation. However, the LLC was invented in 1977 by the state of Wyoming to fill a new need—businesses that wanted to be managed and taxed like partnerships, but protected from liability like a...
    read more
  • Common LLC Terms
    Before forming an LLC, you should be familiar with these common terms used when discussing LLCs. Member A member is a person who owns an interest in a limited liability company. Unless the articles of organization provide otherwise, the members also manage the LLC. Managing Member A managing member...
    read more
  • Definition of a Limited Liability Company or LLC
    Like a corporation, a limited liability company or "LLC," is a separate and distinct legal entity. This means that an LLC can obtain a tax identification number, open a bank account and do business, all under its own name. The primary advantage of an LLC is that its owners, known as members, have "...
    read more
  • Ownership Percentages
    LLC ownership can be expressed in two ways: (1) by percentage; and (2) by membership units, which are similar to shares of stock in a corporation. In either case, ownership confers the right to vote and the right to share in profits.
    read more
  • LLC Advantages and Disadvantages: Overview
    Before forming a limited liability company, the business owner or prospective business owner should become familiar with the advantages and disadvantages of an LLC and how they compare to those of other business entities.
    read more
  • LLCs Compared to Corporations
    LLCs are similar to corporations in that they allow you to start a business without worrying about unlimited liability. However, in creating the LLC, state laws provide some advantages over corporations. Advantages of an LLC
    read more