Is LLC Taxed as a C Corporation?

Introduction

LLC stands for a limited liability company. It is one type of business entity that is formed by two or more persons who share common interest and desire to do business under a single name. LLCs are considered as pass-through entities and does not have any tax implications on the members of the LLC.

C Corporation Tax

Typically, C corporations are taxed at both the corporate and shareholder level. Although this tax is not paid directly by the corporation, it can have a significant impact on your business. The amount of tax you pay depends on whether you’re classified as an S or C corporation and how much income your company earns each year.

If you own shares in an S corporation, you’ll only be responsible for paying taxes on any dividends that are paid out to shareholders (you may also be able to deduct some losses from your taxes). However, if your company is a C corporation, then all profits are taxed at both the corporate and shareholder levels:

-Corporate income tax -Income tax on dividends paid to shareholders -Personal income tax on any salary or consulting fees paid out to you as an owner

LLC Tax

When it comes to taxes, LLCs are treated like partnerships. This means that the owners of an LLC pay income tax on their share of the profits and self-employment taxes on those profits. Owners can then deduct expenses from that profit before paying income tax on it.

The IRS has established substantial penalties for failing to file an individual 1040 form for each year your company conducts business in any way at all. These penalties are steep enough that it’s usually worth hiring an accountant (or becoming one yourself) if you own a small business like this one.

These penalties include a large fine for failing to file and an even larger fine for failing to pay taxes on time. If you’re not careful, you could be looking at a $250,000 fine just for being behind on your taxes. If you are found guilty of tax evasion or fraud, the penalties go up even higher.

Individual Taxation

If you’re thinking of incorporating your business, you may be wondering whether it will be taxed as a C corporation. The good news is that for the most part, it won’t. Instead, companies that are organized under state law are taxed in one of five ways:

• Sole proprietorship (you report on your personal income tax return)
• Partnership (the partnership reports on its own return)
• S corporation (the shareholders report their share of profits or losses from the business)

LLC is taxed as a C Corporation when they have elected to do so by filing Form 8832 with IRS. However this election is only allowed if LLC has been in existence for more than one year and the total value of assets owned by the company does not exceed $50 million at any time during any calendar quarter during its current taxable year.

PSCs are Similar to C Corporations in terms Tax Payment

A PSC is a corporation that provides personal services to its shareholders. This type of entity pays taxes as a C corporation, but the income earned by the company is not subject to double taxation like it would be if you were an individual who incorporated and then paid yourself as an S Corporation shareholder.

A PSC can have up to 100 shareholders, although there are some restrictions when it comes to ownership structure and residency requirements (see below). In addition, only US citizens or green card holders can control this type of business entity.

Once formed as a PSC you will file Form 1120-PC with the IRS each year following your company’s fiscal year end date (even if you don’t owe any taxes). Your tax return will include Schedule K-1s for all shareholders who received distributions during that period.

Takeaway:

The takeaway is that an LLC taxed as a C corporation will have the same income tax consequences as any other business entity taxed under Subchapter C. It must file Form 1120, U.S. Corporation Income Tax Return, and pay income tax according to its net earnings.

However, an LLC taxed as a partnership or sole proprietorship generally will not owe federal income tax if it has no employees or it hasn’t made any capital investments in tangible property (other than inventory).

Conclusion

If you are considering setting up a limited liability company as an LLC, it is important to understand that there are different tax implications depending on whether or not your business is taxed as an S-Corp or C-Corp. The decision you make will have a direct impact on how much money your company saves in taxes each year.