LLC Tax Preparation: Everything You Need to Know

LLC tax planning involves different tax rules and forms, depending on the business ‘s tax condition. LLCs may be taxed like exclusive proprietorships, partnerships, or corporations.3 min read1. Preparing an LLC Tax Return
2. Various Tax Forms LLCs May Need

Updated November 23, 2020:
LLC tax preparation involves different tax rules and forms, depending on the occupation ‘s tax condition. LLCs may be taxed like exclusive proprietorships, partnerships, or corporations .
The versatile forms you might use to file taxes include the postdate :

  • Schedule C
  • Form 1065
  • Form 1120 or 1120S
  • Schedule K-1

LLC owners can choose how the IRS treats their occupation for tax purposes. The LLC itself does n’t pay taxes. alternatively, the clientele income passes to the ship’s company ‘s owners or members, and they pay taxes on earnings via their personal tax returns .

Preparing an LLC Tax Return

To prepare your LLC tax reappearance, you should follow these steps .

  1. Determine your tax election. Single-member LLCs can be taxed as corporations or sole proprietorships, and multi-member LLCs can choose to be taxed like corporations or partnerships.
  2. If you filed a return last year, retrieve those documents. The only time you wouldn’t need to refer to last year’s return is if this is your first year filing taxes for your LLC.
  3. Prepare your company’s books. Your LLC should have a procedure in place for recording and classifying business income and expenses. You might use an accounting program or the services of a bookkeeper.
  4. Update each member’s record of capital accounts. A member’s capital account is the amount of property, money, and services he or she has given to the company, minus any withdrawals. In most cases, the capital account is a reflection of a member’s share of company profits and losses, which is typically in proportion to his or her ownership interest.
  5. Look for changes in the amount of profits and losses due to each member. In an operating agreement, you can change how to allocate profits and losses to your LLC’s members. Instead of allocating based on a proportion of a member’s ownership interest, members may agree to another type of apportionment.
  6. Use a do-it-yourself tax preparation program or retain an accountant. You’ll have a better idea if you can use a tax program yourself or if you should hire an accountant after you collect basic information like profit and loss allocations, tax classification, and income and expenses. In many cases, if you’re used to paying taxes as a sole proprietor, you might feel comfortable continuing to file a return yourself. LLCs that are taxed like corporations have more complex tax rules, so their owners may find it helpful to hire an accountant.

Various Tax Forms LLCs May Need

Multi-member LLCs
Multi-member LLCs charge form 1065. This shape applies to LLCs deoxyadenosine monophosphate well as partnerships, so it can serve your needs as an LLC commercial enterprise owner .
You must show your business ‘s sum earnings adenine well as your company expenses and deductions. You do n’t actually pay taxes with this phase because as an LLC, business income passes through the company to its members. The shape just provides data to the IRS.

Along with Form 1065, you ‘ll issue a Schedule K-1 to all company members. agenda K-1 lists the member ‘s income. You do n’t list the business ‘s total earnings on it, merely the member ‘s individual share of business earnings. Members use the information on Schedule K-1 when declaring their income on form 1040 .
Single-member LLCs
Single-member LLC owners do n’t file Form 1065 and do n’t need a Schedule K-1. All you have to do is complete Schedule C and attach it to your personal tax tax return. You ‘ll besides calculate your self-employment tax on Schedule SE .
Corporate Tax Status
You may choose to be taxed like a corporation, in which character you ‘ll file Form 883 2 to make this election. Your clientele will inactive be an LLC, but you ‘ll be taxed at the bodied rate and discipline to double tax. If you make this election, you ‘ll file taxes using Form 1120.

You might choose S corporation status alternatively of C pot to retain the pass-through benefits. In that case, file Form 255 3 to make the election for S corporation condition and use Form 1120S to file your tax return .
If you ‘re the exclusive owner of an LLC, you may be able to file your taxes yourself with little trouble. Multi-member LLCs may find it helpful to hire a CPA to do their taxes for them since taxes are often more complicate when a business is taxed like a partnership or corporation .
If you need help with an LLC and its tax requirements, you can post your legal need on UpCounsel ‘s marketplace. UpCounsel accepts only the clear 5 percentage of lawyers to its web site. Lawyers on UpCounsel come from police schools such as Harvard Law and Yale Law and average 14 years of legal feel, including employment with or on behalf of companies like Google, Menlo Ventures, and Airbnb .

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Category : Finance

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