LLC Tax Calculator: Everything You Need to Know
LLC tax calculator refers to how taxes are assessed on companies that have organized as limited liability companies. 3 min read
Updated November 3, 2020:
LLC Tax Calculator
LLC tax calculator refers to how taxes are assessed on companies that have organized as limited liability companies. As a new company is formed, there is much to consider regarding both its corporate structure and its taxation election.
How Are Limited Liability Companies Taxed?
When you form a company as a limited liability company, it doesn’t yet have a tax election. Many different government entities have tax jurisdiction over a business. Local, state, and federal taxes all apply to limited liability companies. Therefore, it is highly recommended that you seek out the advice of an experienced legal, tax, or accounting professional.
Limited Liability Company
Members of a limited liability company can be one person, multiple individuals, or even other LLCs. Estimated taxes, payroll, and property taxes are all things that apply to limited liability companies.
Limited liability company corporate structure is a hybrid of limited liability partnerships and corporations. “Limited liability” means that members of LLCs have protection from liability for their personal assets. The benefits of a corporation protect the individual from having to pay tax on the income of a business twice.
The flexibility of an LLC’s structure makes it ideal for many business entities. They are also less expensive to start and have fewer forms and less paperwork than other business structures. One downside of this corporate structure is that LLC members (the owners) have to pay the self-employment tax.
If you are the only member of a LLC, then the Internal Revenue Service may consider you a sole proprietorship. The LLC doesn’t pay income taxes (some state taxes may apply depending on the business and the state). The sole member (owner) of the limited liability company would just claim the business profits (and sometimes losses) on their personal income tax return.
There are additional taxes applied to these types of earnings. Taxes like self-employment and the excise tax are usually applicable.
If the LLC has multiple members (owners) then the tax burden gets divided between the members.
The income of each LLC member determines the percentage of the self-employment tax that they are required to pay. Some members may get a pass on the self-employment tax requirement if they are only partial-partners in the LLC.
Some limited liability companies elect to be treated as corporations. The business entity then files its own income tax return. Then no members are required to report the business’ profits or losses on their personal income tax returns. High-revenue organizations may want to have this tax election. Partnerships and sole-proprietorships may have higher taxes than a corporation. Also, no member will be taxed on money that has not been distributed to them.
Filing Form 2553 in the allotted time (the first 2 months and 15 days) of the tax year can make your tax election into an S corp. S corporations are great for owners of the company because shareholders (owners) only pay taxes on earnings they personally receive.
In this way, they can avoid being taxed twice on the income of the business. LLCs that elect to be S corps can only have fewer than 100 members. In addition, none of the members can be partnerships, non-resident aliens, or corporations.
Employment taxes are levied on the entire salary of a member taxed as a standard LLC. While an S corp is taxed one of two ways (either as a salary with employment tax or as a distribution on which you pay federal income tax), a standard LLC member will be taxed on the entire salary (or income of the business). This is like being taxed twice on the same income.
First, the entity is taxed and then the individual is taxed without relief. An experienced attorney or accounting professional can help you to navigate the mine field of business and personal taxation.
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