There are numerous methods to tax an LLC at the federal level, depending on its form. We will walk you through the filing procedure of the two most typical LLC tax structures—disregarded entities (Single-Member LLCs) and partnerships—in this tutorial (Multi-Member LLCs).
When it comes to taxes, single-member LLCs are regarded the same as sole proprietorships unless they want to be a corporation. As a result, the IRS considers the LLC to be a “disregarded company,” which means you must record all earnings and losses on your personal tax return, often known as form 1040.
Furthermore, disregarded entities must complete two forms (Schedule C and Schedule SE) detailing their business costs and revenue. These “schedules” are filed with your personal tax return.
Individuals utilize this form to file their personal tax returns. If owners of Single-Member LLCs functioning as disregarded entities earn more than $400 through self-employment, they must file Form 1040.
You will file your personal tax return as usual, but with Schedule C attached. If you are the only proprietor, you must assess all revenue and costs linked to your firm. The entire profit is shown on line 12 of your personal tax return.
If you own rental property or have other business-related interests, your earnings will be reported on Schedule E. On a separate sheet, these calculations are also performed.
Schedule C of Form 1040 is devoted to monitoring the income and losses of firms taxed as sole proprietorships, including Single-Member LLCs that have not adopted corporation status. Profits reported on this form will appear on line 12 of your personal tax return.
In the first section of Schedule C, you must provide the general nature of your business. This includes the following:
Schedule C is broken down into five pieces. The following are the fundamental instructions for each section:
Owners who earn at least $400 must pay self-employment tax on Schedule SE, Section B.
If you are a Multi-Member LLC, the IRS considers you to be a partnership for tax reasons. Your taxes, like those of a Single-Member LLC, will travel through the LLC and onto the personal tax returns of each owner.
Multi-Member LLCs, unlike Single-Member LLCs, do not need to complete a Schedule C form. Instead, the owners will complete paperwork outlining the entire partnership revenue as well as their personal portion.
As a member, you will complete Form 1040 as usual. Profits from rental real estate or other business-related assets will be reported on line 17 if you are a partnership, S Corporation, or have other business-related interests. These calculations are also performed on a separate sheet referred to as Schedule E.
You must record your self-employment tax deductions under the “Adjusted Gross Income” section.
Owners who earn at least $400 per year must pay self-employment tax using Section B of Schedule SE.
You must file this form along with your personal tax form to report any extra income from your partnership.
Part two of Schedule E deals with partnership income and loss; since this is part of your personal taxes, you simply need to record your portion of your business’s revenue. In order to complete Schedule E, you must use the figures from Schedule K-1.
While each owner will report their shares on Form 1040 and Schedule K-1, your business will use this form to report your Multi-Member LLC’s total income and loss. You must supply the following information about your company:
Form 1065 is divided into seven major components. The following are the fundamental instructions for each section: