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Written by : Candyce Gazaway
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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
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- Candyce Gazaway, Staff Member
welcome back today we're going to talk about the different types of LLC's we'll address just a few in this video I'm mark Lida from the light a law firm let's get started LLC's can be used for all different types of purposes and can be set up in many different ways the first type of distinction between different LLC's is whether your LLC is a single member LLC alright multi-member LLC that's pretty self-explanatory a member is considered an owner of the LLC so a single-member LLC simply means that there's one owner of the LLC and a multi-member LLC means that like a partnership there are multiple owners LLC's can be owned by individuals or by other LLC's so if you have multiple LLC's owning a single LLC that would be considered a multi-member LLC another distinction between different types of LLC's is member managed versus manager managed this too is fairly self-explanatory but when you're registering your LLC you'll probably be asked to declare whether your LLC is a member managed LLC or a manager managed LLC all that means is that a member managed LLC is where the actual member of the LLC and owner of the LLC is actually running the show and managing the operations of that LLC where as a manager manage two LLC is a type of situation where maybe one person owns the LLC but they delegate the task of actually managing that LLC to another person who is a non-member that would be a manager managed LLC another big distinction you see among LLC's are holding or umbrella LLC's versus actual operating LLC's this isn't just an LLC concept it's a company concept in general there are companies that exist only to hold assets like real estate or to act as an umbrella holding company for other companies subsidiary companies those are considered holding companies and then on the other hand you have actual operating LLC's so that's another distinction you see holding LLC's versus operating LLC's the reason that holding companies exists is to create additional layers of protection from liability so these are just a few different types of LLC's there are more and there are different ways that you can use LLC's but these are some of the major distinctions that you see you have single member LLC's versus multi member LLC's you have member managed LLC's and manager managed LLC's you have Holding Company LLC's and operating LLC's but they're all LLC's they're all the same type of basic legal structure and depending on your state you register them in the same way it's just you're choosing to do different things with each of those different types of LLC's so that is an overview of some basic types of LLC's and that's in the distinctions between them we go into a little more detail all about LLC's in this playlist thanks for watching and please remember to click like and subscribe to help keep legal education free for small business cars you
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- Candyce Gazaway
About the author
I've studied archaeo-optics at Allen College in Waterloo and I am an expert in sociology of work. I usually feel optimistic. My previous job was packaging machine operator I held this position for 14 years, I love talking about binge watching and fly tying. Huge fan of Morgan Lily I practice skeleton and collect postmarks.
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