Tips for Filing Taxes as an LLC Business Entity

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According to the Tax Foundation, pass-through entities like Limited Liability Corporations and S-corporations are on the rise. Meanwhile, the growth of traditional C-corporations has stagnated, dropping to only 1.7 million in 2014 as compared to 7.4 million S-corporations and a whopping 23 million individual business owners. 

There are clear benefits to LLC tax filing when April rolls around. And today, we’re talking about a few of them with this guide to filing taxes as an LLC. 

If you’ve been looking for advice you can trust about filing your taxes as an LLC in 2020, search no longer. Check out this guide to learn everything you need to know about filing your LLC taxes the right way. 

Who Should File as an LLC?

Filing as an LLC is a tried-and-true way to lower the amount you pay in taxes dramatically. But that’s not the only reason LLCs are so popular today. Here are four of the most common reasons someone might decide to become an LLC:

  • You currently pay double taxes
  • You pay high self-employment taxes
  • You need to protect your business from liability
  • You want to scale up

3 LLC Tax Scenarios

Companies or individuals filing as LLCs receive a ton of flexibility when tax season comes around. Why? Because of the management provisions and buy-sell operations inherent to this type of tax status.

But when you apply for LLC status, you may feel overwhelmed by all the options presented to you. You can become a single- or multi-member LLC or an S-corporation, each of which has its pros and cons. We explore some of those pros and cons below. 

1. Single-Member LLC

Single-member LLCs are just as they sound: an individual business owner runs the company and hasn’t yet opted to become a corporation. Single-member LLCs file taxes in the same way a wage-based employee files their earnings and expenses. That is, using a 1040 form.

Instead of seeing your earnings on a W-2, though, single-member LLCs use a Schedule C form. Schedule C forms are filed using income statements and financial records. And if you plan on reporting any deductions, you’ll need receipts for those purchases. 

Finally, single-member LLCs pay social security and Medicare taxes via a form called Schedule SE. 

2. Multi-Member LLC

Despite having a similar name, multi-member LLCs file taxes completely different than single-member LLCs. That’s because this kind of business is made up of more than just a sole proprietor. In that case, the LLC itself must file one form (Form 1065) while each employee files another form (Schedule K-1).

For Form 1065, a multi-member LLC would report the business’ year-end financial statements. Pertinent financial statements include:

  • Profit and loss statements
  • Net incomes and revenues
  • All deductible expenses
  • The year’s balance sheet

LLCs are considered pass-through entities. And that means all multi-member LLC members must report profits and losses on Schedule E. And they would report self-employment taxes on Schedule SE. 

The Schedule K-1 form comes in when each employee or partner of the multi-member LLC must report their profits and losses. And this form is part of the personal tax return. 

3. S-Corporation

An LLC can decide to become an S-corporation by filing Form 2553. S-corporations are unique because they’re considered both corporations and pass-through entities. Yet S-corporations are quite different from LLCs. 

Here’s the secret: while LLCs have to pay taxes on 100% of the company’s earnings, S-corporation owners only have to pay taxes on the profits they earn as a salary.

An S-corporation files Form 1120S as the tax return. And the business owner plus his partners must file Schedule K-1s.  

What to Expect When Filing Taxes as an LLC

LLCs must file taxes on or before the 15th day of the third month of the year. However, you can file Form 4868 before April 15th for an extension. This extension typically gives you until October 15th to complete your LLC tax filings. 

Another consideration: if you want to file to become a C- or S-corporation, you have to do so at least 75 days after the beginning of the tax year. 

LLC Tax Deductions 

Want to lower your taxable income even further? You need to know all about tax deductions. Deductions are IRS-approved ways to reduce your taxable income by subtracting certain expenses and donations. 

For example, businesses can deduct charity donations of up to 60% of their taxable income. Here are some other allowable LLC tax deductions:

  • Health insurance premiums for owners and their families
  • The cost of disability insurance premiums for employees
  • Mileage rates of business vehicles
  • Business insurance for your LLC or corporation
  • Home office rent or other associated costs
  • Personal property (i.e., laptops, software, and office furniture) for business needs
  • Retirement plans for employees and owners
  • Hiring owners’ children
  • Business meals and entertainment costs
  • Employee educational expenses
  • Professional organization dues
  • Business-related subscriptions
  • Travel and tickets to business-related conventions, conferences, and seminars

While we’ve mentioned many of the relevant deductions your LLC or corporation can legally file, this list certainly isn’t exhaustive. When you’re dealing with taxes and the IRS, sometimes a DIY tax plan isn’t enough. That’s where an LLC tax professional comes in. 

When the IRS Comes Knocking: Consult an LLC Tax Filing Professional

So you know DIY LLC tax filing isn’t for you. What now? It’s time to call up a professional to help you out. 

Silver Tax Group is made up of real tax attorneys who want to help protect you and your business from the IRS. From tax consulting to criminal tax defense, we’ve got your back. Contact our team today to get the LLC tax filing help you need. 

Managing Partner of Silver Tax Group, author of the book “Stop the IRS”. Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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