Turbo Tax for LLC: Everything You Need to Know
When filing taxes for your limited liability company, the most important step is understanding how the IRS treats LLCs in regard to taxation.3 min read
Using Turbo Tax for LLC is an easy way to file your business taxes. When filing taxes for your limited liability company, the most important step is understanding how the IRS treats LLCs in regard to taxation.
Tax Treatment of an LLC
If you have more than one member in your LLC, the IRS will consider your company to be a partnership for tax purposes. Therefore, the LLC will not have to pay taxes directly from the business. Instead, the profits and losses of the business pass through the company to the individual owners, who then report it on their personal tax returns.
While an LLC does not pay taxes directly from the business during tax season, the owners must file an information corporate return on Form 1065, which is a Partnership Return of Income. The Form 1065 must be accompanied by a Schedule K-1 for each LLC member. The form will list all profits and losses each owner is responsible for based on their portion of ownership. These amounts are what each owner will report on his or her personal 1040 tax return and what the IRS will be looking for from each owner.
A limited liability company can also be taxed as a corporation if the owner files an Entity Classification Election Form 8832. If choosing this election, you must file a Form 1120 at tax time, which is a Corporation Income Tax Return. If you are a single-member LLC, you will be regarded as a sole proprietorship and file a Schedule C with your Form 1040 personal tax return.
There is sometimes confusion as to whether all LLC members will be subject to self-employment taxes on their share of the company. As a general rule, only members that are routinely engaged in the business need to pay self-employment taxes.
There is a special rule regarding LLC members who are limited partners and don't take an active role in running the business. They do not pay self-employment taxes on the profits that have been passed to them by the company. They only pay taxes for the direct services they provide to the LLC. The IRS considers participating members to be those that have contributed at least 500 hours a year to direct operations or work within the company.
If you are using TurboTax to file taxes for your LLC, you will need to choose the right edition depending on your business structure. If your LLC is a single-member, your company will be treated as a sole proprietorship, and you can use TurboTax Home & Business. If you have a multi-member LLC, it is best to choose TurboTax Business.
TurboTax offers plenty of features for the price. It not only provides chat and telephone support but is also one of the easiest types of tax software to use. It also offers audit support and specialized programs such as:
- Self-Employed Edition
- Business Edition
These editions are great choices for businesses of all sizes. Your TurboTax program will:
- Utilize your inventory to make a profit and loss calculation.
- Calculate your profits and losses.
- Guide you through all expenses and sales.
How Tax Software Providers Are Evaluated
When deciding which tax software is the best option for your company, you should evaluate these four areas:
- Ease of Use. You want the program to be easy to use, even for someone not certified in the tax code.
- Error Checking and Audit Support. You want a program that can check your return for errors and inaccuracies. You also want to have the option for audit support to ensure you have additional protection.
- Deduction Finder. You want a program that can help find all the possible deductions you qualify for to make sure you get the most out of your return.
- Customer Support and Help Desk. You want a software program that provides available support in case you have questions while filing your return.
TurboTax is a popular choice for LLC owners due to its many features, such as:
- Suggesting deductions, such as on vehicles and home office, for self-employed workers.
- Allowing you to enter multiple sources of income.
If you need help using TurboTax for LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.