Frequently Asked Questions About LLC Taxes and Local Regulations in Los Angeles
Forming a Limited Liability Company (LLC) affords business owners protection from their business' debts, liabilities, and obligations3 min read
Forming a Limited Liability Company (LLC) affords business owners protection from their business' debts, liabilities, and obligations. Because of this, and the various tax benefits associated with forming an LLC, they are a popular choice among business owners in Los Angeles. Whether you are a new business launching or are looking into revitalizing an existing business, forming an LLC is a smart move. But with it comes several tax-related questions, including; “What kind of taxes will I have to pay?” and “How do I file my taxes?” In this article, we provide answers to the most frequently asked questions about LLC taxes and local regulations in Los Angeles.
Understanding the LLC Basics
Before diving into the details of LLC taxes, it's important to understand the basics of an LLC. An LLC is a corporate structure that combines the financial, legal, and tax advantages of a corporation and the management and operational flexibility of a partnership or sole proprietorship. As a business entity, an LLC offers owners protection from business debts and liabilities, as well as other tax advantages. While the specifics of taxes and filing vary state to state, LLCs have the potential to minimize the overall tax burden as it applies to the business and the individual owners.
Taxes and the LLC
One of the greatest advantages of forming an LLC for a business in Los Angeles is having all the profits and losses of the business passed through to the owners, who must report the income or losses on their individual tax returns. Because of this, LLC owners will not have to file corporate returns and pay corporate taxes, which makes the tax filing process much simpler than filing as a corporation.
However, when forming an LLC, it can be beneficial to speak with a knowledgeable legal and tax professionals in Los Angeles to understand the tax implications of each LLC entity type. In particular, LLC owners are encouraged to determine whether they’ll need to register any business taxes and pay any estimated taxes to the government in the state of California. These taxes can include; employment taxes, sales taxes, unemployment insurance taxes, and others, depending on the type of business, the state, and the tax requirements.
Payroll Tax Requirements
If an LLC has any employees, the LLC must generally pay payroll taxes for Social Security and Medicare taxes. For each employee an LLC has, it must get an employer identification number (EIN) from the IRS. Once obtained, the LLC can then get set up with the California Employment Development Department (EDD) in order to request the necessary payroll tax forms and make the appropriate payments.
LLC members who work in the business are usually subject to self-employment taxes on the income they receive. LLC owners in California should factor this into their decision to set up an LLC or another type of business entity.
Income Tax Treatment
The way an LLC is taxed can vary due to its members and the type of business it is. For instance, if it is a single-member LLC, the IRS considers this an individual, and thus it is taxed as a sole proprietorship. On the other hand, if the LLC has multiple owners, the entity is taxed as a partnership, and the profits and losses are passed through to each owner according to the agreed-upon ownership percentages.
In addition to the IRS regulations an LLC must be aware of, the LLC also has to factor in any local regulations it must follow. This includes registering the business with the city of Los Angeles, applying for city-specific business permits, and registering with the Secretary of State of California. It’s recommended to consult with a knowledgeable legal and tax professional in Los Angeles to ensure compliance with all federal and state regulations.
Seeking Professional Support
Given the extent of taxes and paperwork LLCs are expected to keep track of in Los Angeles, it's often beneficial to seek support from a legal and tax professional. Even with extensive knowledge of the LLC tax laws and regulations, keeping up with ever-evolving tax laws can be daunting. Engaging with experienced Los Angeles business attorneys through UpCounsel's network of experienced lawyers is one practical way business owners can get the legal support and resources they need for tax-related issues.