Top Things to Know About Taxation of LLCs
A limited liability company (LLC) gives owners — known as members — a lot of leeway in how the business is structured and managed, as well as some flexibility in how business earnings are taxed.
- 2,515,073 LLCs reported income and expenses to the IRS for 2015 
- LLCs are one of the most popular business structures in the U.S.
- Most states do not restrict ownership of an LLC
- LLCs are governed by state statute. Members may include individuals, corporations, other LLCs and foreign entities.
- The number of members is unlimited
- An LLC may be have just one member, or it can be a multi-member LLC with two or more owners.
- LLCs are not taxed as a separate business entity
- Unlike for corporations, all profits and losses “pass through" to the members of the LLC, who report those profits and losses on their personal federal income tax returns.
- Single-member LLCs are treated as a sole proprietorship
- If you're the only member, don't file a separate tax return. Instead, you report all profits and losses of the business on Schedule C and attach it to your personal income tax return (Form 1040).
- Multi-member LLCs report profits and losses on Form 1065
- In addition, give each member a Schedule K-1, showing their share of partnership income, deductions and credits. How a multi-member LLC shares profits and losses is defined in the LLC operating agreement.
- No need to worry about tax withholding
- Each member is considered to be self-employed and must make their own quarterly estimated tax payments.
- 20% income tax deduction if eligible
- Starting with tax year 2018, LLC members may be able to deduct up to 20% of their pass-through income from an LLC (Form 1040, Line 9). The deduction is limited for "specified service trades or businesses" with taxable income over $157,500 for single filers and $315,000 on joint returns. The pass-through deduction is complex, so talk to your tax advisor to take full advantage of this new deduction.
- You choose how you get taxed
- An LLC can opt to be taxed as a corporation by completing Form 8832. At tax time, file Form 1120 so that taxes will be paid by the business.
- 21% or 37%?
- Starting with tax year 2018, corporations are taxed at a flat 21% rate on all of their profits. That's much lower than the top individual income tax rate of 37% — so LLC members may save money on their taxes by choosing to be taxed as a corporation. But corporate taxes can be complex and costly, so this is usually only a smart move if you plan on raising venture capital. Talk to a tax advisor to weigh the costs vs. benefits.
 Internal Revenue Service, “SOI Tax Stats – Partnership Statistics by Entity Type," https://www.irs.gov/statistics/soi-tax-stats-partnership-statistics-by-e..., Accessed February 13, 2019.