LLC taxation is different from that of a corporation or other business entities in a number of ways. First, the LLC does not pay federal taxes on its earnings through the year. Do not misconstrue that as reading “tax free” because that is not true. However, the way that the taxes are paid is different. ...

LLC taxation is different from that of a corporation or other business entities in a number of ways. First, the LLC does not pay federal taxes on its earnings through the year. Do not misconstrue that as reading “tax free” because that is not true. However, the way that the taxes are paid is different. A corporation is a separate tax entity and will pay taxes as a whole with the corporate members paying taxes on their individual earnings as well. A LLC is a pass through entity so there are no taxes levied on it.

Limited Liability Company taxation does not tax the company because the earnings do not technically stay with that company; they pass through to the business owners whether there is one, two or fifteen of them to deal with. 

Corporate taxation is different from LLC taxation in other ways as well. For instance, once the corporate taxes have been assessed, the amounts that are levied against the corporate members might be very different as well. Each corporate member may pay a different amount of tax because their individual earning level will be different. For the LLC all of the owners will get a share that is equal to the amount they have invested in terms of both time and money and will be equally taxed for those amounts by the government. How those taxes are assessed and what forms will need to be filed is an individual thing and has many factors that must be figured before a definitive answer can be devised. It is best to consult a CPA who can explain these figures more clearly. 

LLC members are technically considered to be self employed business owners and should therefore file self employment taxes. To do so correctly, the member must estimate their share of the company’s yearly profits and then make quarterly payments on that estimated profit amount each tax year. However, it should be noted that those who are only invested financially in the business and make no decisions on how it is run or what it does with this funding are exempt from these taxes. The amount of money that is paid toward this estimated amount can be deducted on the owner’s tax return at the end of the year.

While LLC taxation is different from corporate taxes there are some questions that will remain: is it better to be named a LLC rather than incorporate my business? How will I be able to tell which is better for me and my co-owners in the long run? Again, these are all questions that could be answered by a CPA who can work the taxes up using both scenarios and let you know what the yearly tax amount might be. There are advantages to LLC taxation, but there are drawbacks that must be considered as well. It is best to know the full story and how it can impact your company before making any kind of decision especially one of this magnitude.