A common question of entrepreneurs is “which legal entity should I create to operate my business?” This question has many ramifications including legal and tax implications. Entrepreneurs should discuss this issue with a qualified attorney and CPA before making the final decision. This article provides some general guidance on the tax ramifications of both entities… At the outset, it’s important to understand that an LLC is an entity created under the laws of your state. LLC’s can actually be taxed several different ways. By default, an LLC with just one owner is taxed as a “disregarded entity”. That’s a fancy way of saying that the income from that LLC flows onto the owners tax return (normally schedule C) without the requirement of filing a separate tax return. From a tax standpoint, there would be no difference running your business as a disregarded, single-member LLC and a sole-proprietorship. If an LLC has two or more members, by default, it is taxed as a partnership. The income generated by a partnership flows through the partnership and is
Disclaimer: While PorterKinney PC has made every attempt to ensure the accuracy of this document, it is not responsible for any errors or omissions, or for the results obtained from the use of the information in this presentation. This document been prepared for information purposes and general guidance only and does not constitute legal, accounting or other professional advice. Circular 230 Notice: The information included in this presentation is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties or (2) promoting, marketing, or recommending to another party any tax related matters.