Charlotte LLCs-3 Key Questions to be Answered at Setup Part 1
Posted by Michael Beauchemin on Fri, Mar 11, 2011 @ 03:57 PM
So, you’re setting up an LLC. What do you know about an LLC, other than a lawyer advised you to set one up to protect your personal assetts.
- Did you you know that has an LLC has no meaning in regards to taxes to the IRS?
- Do you know that an LLC can be a sole propreitorship, partnership, S Corporation or C Corporation?
- Do you know the difference between each of these business structures and the tax implications of each?
What is an LLC
The Limited Liability Company (LLC) is a popular business structure, because of its flexibility and the protection it can provide you for your personal assets, against debts and the actions of your LLC. It is best left up to the lawyers to talk about the benefits of the legal protection that an LLC provides.
This article focuses on the choices you have regarding how you want the IRS to treat your LLC for taxes. Taxes are a a major cost to you and your business. Doesn’t this decision merit consideration and at least a few minutes of your time to learn about each entity, and understand how the income from each is treated for taxes?
IRS and the LLC
Although, most people starting a business are familar with the term LLC, they do not fully understand LLCs or the choices they have available to them regarding taxes. It is important for anyone setting up an LLC to understand that the IRS does not recognize an LLC as a classification for tax purposes.
Simply put, when you setup an LLC, you have to tell the IRS how you want them to treat your LLC for tax purposes. If you do not notify the IRS what entity you have selected for your LLC, it will default to a sole propreitorship (for a single member LLC) or a partnership (for more than a two member LLC). This is one of the few times in life, when you can tell the IRS how to treat you…regarding taxes, that is.
Your Choices for an LLC are:
- Sole Properitorship
- S Corporation
- C Corporations
Each of these entities, are different with very different compliance and filing requirements. In Part 2 of this blog post we will take a look at each entity and highlight how the net income for each is treated for taxes.