As an LLC its a responsibility and liability to report all revenue of the LLC in the tax form. CPA firms are the best bet to help with LLC tax filing

5 Must-knows when filing your federal taxes as an LLC

As an LLC or member of an LLC, it can sometimes be a huge burden to know and understand what your tax obligations are. However, being ignorant is not an excuse under the law. You have to know or get people that know to help you with the process. LLCs have the unique distinction of not being a corporation, partnership, sole proprietorship, or nonprofit, as far as taxation is concerned and there are some special rules and procedures required of them, particularly the members responsible for the day-to-day running of the business. So, here are some tips on filing your taxes as an LLC.

The number of members in the LLC matters

It is important to note that a limited liability company or LLC is not for tax purposes, distinguishable from its owners or stakeholders like a corporation. Instead, it is more like a partnership or sole ownership, depending on the number of members of the LLC, which means that the profit is responsible to the LLC owner(s), who must calculate this information as part of their taxes. So, if it is just one owner, then for tax purposes it is usually treated as a sole proprietorship. So, as the sole owner, you have the sole responsibility and liability to report all revenue of the LLC in the tax form Schedule C and then submit it at the due date. 

Where there is more than one owner or member in the LLC, then it is treated as a partner, with each member obligated to report his profits and loss accruing directly from the business the LLC undertakes. These are known as distributive shares, and they are usually set out in the LLC agreement beforehand. As far as tax purposes are concerned, each member must submit revenue proportionate to the portion they own as a member of the LLC, which will be determined by the revenue accrued by the LLC for such an accounting year. So, it does not matter whether or not the profit was distributed, every LLC member is still responsible for tax payments for the profit or loss that should have been distributed to them.

You can file as a corporataxtion to reduce taxes

It should be noted that as an LLC you can still decide to be taxed as a corporation, so you can keep as much profit as you can in the business. You just need to fill Form 8832 in the IRS form, so you can specify that you have elected a particular classification for purposes of taxation. You then check the corporate tax treatment box in the form.

This allows the benefit of a “C” class corporation, which is taxed at a flat rate of 21%. Apart from this relatively straightforward tax rate, you can also enjoy other tax credits and reductions based on capital gains and other equity and stock deductibles.

You need professional assistance

Getting professional help when estimating and paying your taxes is always an advisable route to go. No matter how much preparation and record-keeping you do, you cannot be conversant on all the rules and procedures. This is especially so if you are used to paying a certain amount consistently or following a certain process, and you may not be aware of changes to these procedures. This will cost further valuable time and money to regularise, so it is always advisable to get fully prepared beforehand.

All LLC members are considered sole proprietors

All LLC members are considered self proprietorships and are self-employed shareholders of the business. As such, they are not burdened to tax withholding ordinarily reserved for employees. So they must make quarterly payments to the IRS directly proportional to the shares they own in the LLC and the revenue and profits made by the LLC each quarter.

This is known as self-employment tax. The self-employment tax rate for members of an LLC is set at a flat rate of 15.3% of net income annually, up to a certain level and then 2.9% for income above the income level determined by the IRS. This is why self-employment taxpayers usually pay more than regular employees who pay withholding tax, due to it being offset by their employers.

One interesting thing to note about the LLC self-employment tax is that where an owner or member of an LLC merely invested capital in the business and is not an active part of the day to day running of the business, they may be able to escape having to pay self-employment tax on their share of the revenue accrued to them in the business. This area can be very complicated and hard to fully understand, especially due to complex and ever-changing rules. Although, getting professionals and authoritative advice can help to make the process much smoother. Professional CPA firms are the best bet to help with LLC tax filing. As they can provide authoritative advice and make the process much smoother. 

Taking advantage of deductions

Deductions are the most popular to reduce your tax burden by a considerable lot. You do not have to pay taxes on all revenue, and the law allows for deductions in some instances. They can be capital expenditures such as inventory, operating expenses, research, travel, and automobile deductions, advertising, and startup capital expenditure write off. 

New regulations also allow you to deduct as much as 20% of net income from the business for tax purposes. However, if you elect to be a “C” class corporation, you cannot take advantage of this deduction. Be sure to consult a professional CPA firm on how to proceed.

The Bottomline

These tips can go a long way to ease preparation for the next tax and accounting period, but the overall success of your business is how you can redirect as much income as possible back into your business. It involves planning, record keeping, research, and an up-to-date understanding of what to do at all times. Taxes can be boring and time-consuming, so it is always best to make the process as seamless and simple as possible.