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four types of LLC tax classification options to choose from from business verse family comm if you're an entrepreneur who needs to know the first steps to starting your own business for the first time you need to watch this video here you'll learn three things first you'll learn about the five different types of LLC tax classification for businesses second you'll learn the unique advantages of filing as an S corporation and finally you'll learn how to make the best decision possible to start a small business LLC with the appropriate corporate structure a limited liability company LLC is one of the most common types of business entities around despite their popularity as a business structure limited liability companies do not have their own tax classification depending on how many members are in the LLC your business can be taxed in different ways as a business owner this could drastically change how much taxable income you have at the end of the year in this video we'll cover the different LLC tax classification options you can choose from single member LLC tax classification for most single owner businesses a single member LLC is taxed as the sole proprietor business the LLC is a pass-through entity so the income will transfer over to your personal income return traditionally this classification is the default when you form an LLC as a single member if you would like to be taxed as a sole proprietorship this classification could work for you it is a common first step for businesses that are changing from a DBA to LLC multi-member LLC tax options secondly if you form an LLC with multiple members the default classification is a partnership under a multi-member LLC formation all the members are taxed like partners in a partnership entity in this situation you might have to file an additional document form 1065 partnership return of income to the IRS since the LLC doesn't pay taxes the net income or losses are transferred to the members you should have your accountant ensure that all income in a partnership taxation is calculated properly using this LLC's classification electing to tax an LLC as an S corporation next you can elect to have your LLC tax classification treated as an S corporation typically this works for single member or multi-member LLC businesses without all the additional work of maintaining S corporation status you have sufficient flexibility to distribute profits or losses to owners but you would probably have to pay yourself a salary at the advisement of a tax professional or accountant if you would like to take the best of both worlds between an LLC versus an S corporation this LLC tax classification could be perfect for you violin LLC taxes like a corporation additionally you can elect to tax LLC entities like a seat corporation using the form 8832 an LLC can be treated as a seat corporation for tax classification purposes this is less common since the LLC will no longer be treated at the pass-through entity it will be regarded as a separate entity which could result in double taxation you could end up paying taxes at the corporate level and then again on the corporate dividend although it's a less popular option you can still consider this LLC tax classification with your financial advisors if needed if you decide to form an LLC you have access to many different types of tax classifications this is one of the major benefits of an LLC structure as a single member LLC you can be taxed as a sole proprietor or corporation in a multi-member limited liability company you can classify the company as a partnership or corporation for tax purposes clearly all of these types of classifications can have various impacts on your tax obligations ensure that you have proper tax planning strategies in place when electing your LLC tax classification which tax classification will you choose for your LLC let us know in the comments below if you found this guide to LLC tax classifications helpful like this video and subscribe to Business first family below then visit business first family com for all your entrepreneurial need you
Thanks for your comment Mauricio Chenot, have a nice day.
- Wiley Rattanasinh, Staff Member
in this video I'm gonna break down partnership taxation basics and basis which is a common concept for partnerships so I'll be explaining how a partnership is taxed and how to keep partnership accounting records because that's what gives you the information you need for taxes and all of this will lead us right into what the multi-member LLC or partnership business needs to keep track of itself and what individual partner members need to keep track of on their own because the business won't be doing it for them if you've been confused by what you find online I don't blame you there's a lot of technical textbook type examples which tend to be disconnected from reality I'll be showing you my partnership worksheet calculation in Excel which compares the three types of member partner basis calculations which I'll be explaining more momentarily and we'll be looking at my multi-member LLC business spreadsheet template now like many things taxes the partnership taxation is quite complex but I'll be explaining the differences between inside and outside basis capital account tax basis so if you've been hearing these terms when you're trying to figure out your partnership taxation I'll be clarifying the differences in this video now I do have other videos that will go through the individual calculations the differences and paying yourself and you'll find the links to those in the description below however I highly recommend watching this video first my name is Amanda you're watching the business finance coach on YouTube where I simplify business to help small business owners succeed I'm the creator of the small business MBA which is an online program that helps business owners step-by-step to set up their LLC their business accounting taxes and legality all in one online II course I give away a free version of the spreadsheet template that's in that course called the free business spreadsheet template if you need help with accounting quarterly taxes and end-of-year taxes all covered in there so there's links in the description below to everything I just mentioned for now let's get back to partnership taxation first let's just go over who exactly partnership taxation is for we have legal business types of multi-member LLC s meaning there's two or more members and partnership businesses now both of these types of businesses default to be taxed as a partnership now if they qualify they can elect to be taxed as a corporation and then text as an escort and an S Corp combines aspects of the corporation and a partnership and it's really a common tax type so how is a partnership text a partnership is called a flow-through entity because the activity from the business flows through to the partners and so the business itself pays no taxes and this happens on form 1065 which is the businesses tax form the business form reports all of the businesses activity income expenses other income other deductions and that all of these amounts flow through on to schedule K ones and there's a schedule k-1 for each partner attached to the form 1065 so all of the activity is reported to the partners based on their ownership percentage each business has a hundred percent ownership share which it can allocate between its owners so all of the amounts on the schedule K ones need to add up to the amount on the 1065 just like all of the partners ownership percentages need to add up to a hundred percent for the business then each partner reports their schedule k-1 on their personal form 1040 for their taxes that means that the business must file before the partner can file their own personal tax form they report the schedule k-1 just like they would a w-2 or a 1099 however that's where things get more complicated because unlike a 1099 which has one number the schedule k-1 will have often many different numbers because it's related to the business activity when that business activity flows through to the K ones it retains its character that's a tax phrase which means if the income was interest income for the business its interest income for the partner on their personal return if the income was rental income then it's rental income on the partners return so let's flip over to form 1065 and schedule k-1 and I'll show you what this looks like form 1065 u.s. return of partnership income so this page one reports what the business actually does so this is going to be the ordinary business net income or loss the income is reported on top and the expenses reported on the bottom that gets us down to this ordinary income or loss line 22 now you'll notice this income doesn't include things like investments dividends or interest sales of things this is only for what the business is in the business of doing that's why there's costs of goods sold gross profit ordinary income or loss now down here are the expenses we have salaries and wages first and that refers to w-2 employees but that does not include any payments to the partners because partners which could be members in an LLC are never taxed as w-2 employees now if they're receiving a regular payments that like a salary that's under guaranteed payments to partners which is a deduction for ordinary business income however I don't want you feeling like that's a deduction in a better way to do things because at the end of the day it doesn't actually make a difference and I'll go into more detail in that in my video about paying yourself in a partnership many expenses will just go under other deductions with an attached statement if they don't fit into any of the other categories so that gets us to ordinary business income or law and a lot of people see this tax section at the bottom and get confused these are not taxes that are often applicable to partnerships so that's the main business activity now page 2 and page 3 are just based on informational questions page 4 is schedule K and this is where everything is divided out and it's from schedule K that all of the information flows to the K ones so we can see that final net income or loss from page 1 line 22 it's reported first but then we have two other main types of income net rental real estate income or loss or other gross rental income or loss so if you have amounts in more than one of box 1 2 or 3 then you should have additional statements attached to your partnership tax return that explain how the any activity listed below is related to these different activities essentially it would have made more sense for them to just require a separate schedule K to be used for each activity box 1 2 & 3 these are the three main activities for partnership net income or loss then we have these called separately stated items we can see there's interest income dividends capital gains sale of business assets that's section 1231 property section 179 deduction is a special type of depreciation contributions means charitable contributions so the business doesn't take it instead it goes to your own personal return to see if that partner will qualify for those charitable contributions are not investment interest expense that was a schedule a deduction net earnings are lost from self-employment and t
Thanks Britni your participation is very much appreciated
- Wiley Rattanasinh
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I've studied food science at Post University in Waterbury and I am an expert in spacecraft design. I usually feel aggravated. My previous job was park naturalist I held this position for 2 years, I love talking about people-watching and legos. Huge fan of Gwyneth Paltrow I practice speed skating and collect sports cards.
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