LLC – FAQ
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LLC is the preferred choice for over 80% of small business.
Types of LLC?
- Domestic LLC: An LLC operating and conducting business within its state of formation. The State of formation has governance over the LLC if formed and conducting business within their jurisdiction.
- Foreign LLC: Contrary to the popular belief, Foreign LLC classification does not mean that the LLC was formed internationally and operating in the U.S. A foreign LLC is operating and conducting business in a different state than the LLC was formed in. Specific state requirements, registration and taxation is mandatory.
- Single-Member LLC: Simplifying, LLC with only one member.
- Multiple-Member LLC: LLC with multiple members. An Operating agreement must be in place, stating out carefully the rights, contribution, attributes, limitations and scope of each member in the event of a disagreement, death or dissolution.
- Series LLC: A Series LLC is a unique form of LLC that acts as a master LLC or umbrella over a series of separate legal entities, which may be a series of members, assets, managers or interests. The series LLC is an option in only eight states: Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas and Utah.
- L3C: An L3C entity is a for-profit company with a stated philanthropic social purpose. This type of LLC is a hybrid business structure that uses the legal and tax flexibility of an LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise.
- Anonymous LLC: Company formation is public record in most states. An anonymous LLC is where the ownership details of the LLC is not made public by the state the LLC is registered. New Mexico is one of the only states that allows for truly anonymous LLCs.
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Common questions for LLC.
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Different types of LLC’s members ?
- Member-Managed LLC: This type of LLC is where all owners (members) are actively involved and operating the business themselves, equally, regardless of their equity contribution. This is the most common type of LLC.
- Manager-Managed LLC: this classification is when some of the business partners want to remain passive in running the business. Either members or nonmembers can be delegated as a manager.
What Types of Tax an LLC is liable for ?
Payroll Taxes on salaries paid to employees that are not members or owners Sales taxes on goods or services purchased for and by the business Property taxes on business owned properties or assets Other type of taxes according to the business activity or industry.
How an LLC is Taxed ?
The Business entity is not taxed per se, so the LLC does not pay federal income taxes directly. Instead, any net profit or loss is “passed through” to the member or members whom is/are taxed on their personal returns.
Does an LLC need to file a tax return ?
It depends if it is a single member or multi-member.
For single member, the IRS treats one-member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the IRS. As the sole owner of your LLC, you must report all profits (or losses) of the LLC on Schedule C and submit it with your 1040 tax return.
For multi-members, the IRS treats co-owned LLCs as partnerships for tax purposes. Multi-members LLCs do not pay taxes on business income itself; instead, the LLC owners each pay taxes on their share of the profits or losses on their personal income tax returns.
Even though a co-owned, multi-member LLC does not pay its own income taxes, it must file a tax return with the IRS. The form is an informational return that the IRS reviews to make sure that LLC members are reporting their income correctly. The LLC must also provide each LLC member with a Schedule K-1, which breaks down each member’s share of the LLC’s profits and losses, called a distributive share, which should be set out in the LLC operating agreement.
In turn, each LLC member reports this profit and loss information on his or her individual Form 1040, with Schedule E attached.
For more information, please contact us to direct your tax concerns or consult a tax professional.
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