LLC Business Filing: Everything You Need to Know
LLC business filing refers to the tax treatment elected by a limited liability company (LLC), which is a legal business entity governed by state law. 3 min read
LLC business filing refers to the tax treatment elected by a limited liability company (LLC), which is a legal business entity governed by state law. LLC members can opt to be taxed as either a sole proprietorship (disregarded entity), a partnership, or a corporation, depending on the number of members and other factors.
The IRS automatically treats an LLC with just one member as a disregarded entity. In contrast, a multimember LLC is automatically treated as a partnership by the IRS. Regardless of the number of members, an LLC can file IRS Form 8832 to elect corporate taxation.
- Any business formed as a corporation under state or federal statute, or by law of an Indian tribe recognized by federal law.
- An association, as defined by section 301.7701-3 of IRS regulations.
- An entity described as a joint stock association by state statute.
- A business banking entity chartered by the state with FDIC-insured deposits.
- A business entity owned by a state, a municipality, or a foreign government.
- Any business entity that can be taxed as a corporation under IRS code, excepting section 7701(a)(3).
- Certain foreign entities as defined by Form 8832.
- Insurance companies.
An LLC does not fall into one of these categories. Thus, it is not treated as a corporation unless it elects for corporate tax treatment by filing Form 8832.
An LLC with two or more members defaults to partnership taxation and must file IRS Form 1065 at tax time. Each member should file Schedule K-1 to detail his or her share of business income, credits, and deductions. In general, members will pay self-employment tax on LLC earnings.
For example, if you and a friend form an LLC that has $100,000 in income and $50,000 in deductions for the year, you'll each report income of $50,000 and deductions of $25,000 on your Schedule K-1 for that year.
If your LLC did business for another company, you'll receive a 1099 that details the amount you were paid (if over $600). These 1099 forms must be reported on your individual tax return.
An LLC that has filed Form 8832 to elect corporate taxation must file Form 1120 at tax time. This form is the income tax return for C corporations. C corporation election means you will be taxed on earnings when they are received by the business and also when they are distributed as dividends. You can avoid double taxation by opting for taxation as an S corporation.
An LLC that has elected taxation as an S corporation must file Form 1120S and have members submit Schedule K-1 with their individual tax returns. IRS Publication 3402 provides more information on taxation for LLCs.
Once you have elected corporate taxation for your business, you cannot change your status for at least five years.
LLC Filing Requirements
To establish an LLC, a company must meet the following requirements:
- A unique business name that contains either "Limited Liability Company" or "LLC." It cannot contain the words "Incorporated," "Inc.," "Insurance," "Bank," or "Trust."
- A registered agent who lives in the state of formation and accepts responsibility for receiving legal correspondence on behalf of the LLC.
- Articles of Organization, a legal formation document that is sometimes called a Certificate of Formation or Certificate of Organization.
- Business permits and licenses, depending on the type of business you have and where it operates. These may include tax registration, general business license, zoning or land-use permits, health permits, or occupational licenses.
- Statement of Information, which details the name of your company, its members, and its business address.
Although an operating agreement is not required by the state, it should be established for your company before you file paperwork to form an LLC. This written agreement details the formations of the business, such as:
- Management structure
- Profit division
- Capital investment procedures
- Procedures for member departure
- Other important administrative elements of the company.
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