12Law Arrow 12Law Arrow  Easy Questions  
12Law Arrow 12Law Arrow Instant Legal Documents

Cohabitation Agreement coming soon!
Separation Agreement coming soon!
No-Fault Divorce coming soon!
Bankruptcy coming soon!

Pros and Cons of Taxation as an LLC in Avella, PA

Pros and Cons of Taxation as an LLC in Avella, PA

The critical ingredient is getting off your butt and doing something. It's as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer.
- Nolan Bushnell

A Limited liability company (LLC) is a "pass-through" entity. The profits and losses of the company pass through the business to the LLC owners or members who report the information on their personal tax returns.

Single-Owner LLC

For tax purposes, the IRS treats one-member LLCs as a sole proprietorship. This would mean no taxes for the LLC and no filling of income tax returns with the IRS. Being the owner of an LLC, you will be required to submit a report of the profits or losses on Schedule C with the Form 1040 tax return. When you decide to leave some of the profits in the company's bank account at year's end for future expenses, you will still pay the income tax for that particular money.

Multi-Owner LLCs

Two owners of an LLC, will be treated by the IRS as a partnership. Like the one-member LLC, a co-owned LLC does not pay taxes on business income, but the members will pay taxes based on their share of profits to be reported on their personal income tax returns together with the Schedule E attached. This sharing of profits and losses is called distributive share and should be indicated in the LLC operating agreement.

How an LLC Divides Profits

Profits are distributed to each member depending on his/her percentage interest in the business. If a person owns 60% of the company, he/she will get 60% of the profits and losses. If the company decides to divide up the profits and losses in a way that is not proportionate to the members' percentage interest, it is called a "special allocation."

How to Tax a Member's Distributive Share

The IRS treats LLC members as though they receive their entire distributive share of each year's profits regardless of how much money is actually paid out. The purpose of this IRS rule is for the LLC members to be taxed based on their rightful share of the earnings, even if some of the money is reinvested in the LLC for expansion of the business.

File Form 1065 with the IRS

A co-owned LLC is not required to pay its own income tax but is required by the IRS to file Form 1065. This is an informational return reviewed by the IRS to determine if the members have reported their income correctly. The LLC is also required to provide its members with a Schedule K-1 showing each member's share of profits and losses. The LLC members report this information on their individual Form 1040 with the Scheduled E attached.

Electing Corporate Taxation

An LLC can choose to be treated like a corporation for tax purposes by filing IRS Form 8832. This is helpful if the LLC regularly needs to keep a large amount of profits or "retained earnings" within the company. Corporate taxable income is lower than individual income tax that is usually applied to LLC owners. This can save you and the co-owners money in overall taxes.

Estimating and Paying Taxes

Withholding taxes is not practiced in an LLC because the owners are considered self-employed. With this regard, all LLC members will be responsible for setting aside money intended for taxes based on their share of the profits. They must estimate the amount of money they owe the IRS for the year (and the state if there is a state income tax) and make quarterly payments in April, June, September, and January. Self-Employment Taxes

Since LLC members are considered self-employed, they make Medicare and Social Security payments directly to the IRS on the earnings they derive from the LLC. Owners who are active in the day-to-day operating of the business pay these taxes on their distributive share. The owners who are investors with no operational responsibilities may be exempt from paying these self-employment taxes from their share of the profit.

Expenses and Deductions

What can be considered as deductible expenses that you can "write off" from your business income? Identifying these can significantly lower the profits that you must report to the IRS. Deductible expenses include:

  • Startup costs
  • Automobile and travel expenses
  • Equipment costs
  • Advertising and promotion costs
  • State Taxes and Fees

    In most states the LLC does not pay a state tax, but LLC members pay individual state taxes on their tax returns. In addition, depending on the state where the LLC is located, there may be an annual LLC fee that is not income related. This is known as a "franchise tax", "annual registration fee", or "renewal fee."

    Personalize & Print a Free PA Last Will Create This Document
    Page 1
    Page 2
    Page 3
    Page 4
    Page 5
    Page 6
    Page 7
    Page 8
    Page 9
    Page 10
    Personalize & Print a Free PA Living Will Create This Document
    Page 1
    Page 2
    Page 3
    Page 4
    Page 5
    Page 6
    Page 7
    Page 8
    Related Legal Services near Avella, PA
    Diane Baker Law
    27 S Arlene St
    Harrisburg, PA 17112
    (717) 671-9600
    Attorneys, Legal Service Plans, Criminal Law Attorneys, Family Law Attorneys, Divorce Attorneys, Rea
    Mc Andrews Dennis
    30 Cassatt Ave
    Berwyn, PA 19312
    (610) 648-9300
    Attorneys,  Accident & Property Damage Attorneys,  General Practice Attorneys,  Legal Service Plans
    Henry Debra L Law Offices
    1011 Fells Church Rd
    Belle Vernon, PA 15012
    (724) 379-9166
    General Practice Attorneys,  Attorneys,  Legal Service Plans,  Bankruptcy Law Attorneys
    Sabatini Carlo
    216 N Blakely St
    Dunmore, PA 18512
    (570) 341-9000
    Bankruptcy Law Attorneys, Attorneys, Legal Service Plans, General Practice Attorneys
    Scheidt Jill M
    50 E Philadelphia Ave
    Boyertown, PA 19512
    (610) 326-8940
    Accident & Property Damage Attorneys, Attorneys, Criminal Law Attorneys
    Meade James R
    5 Acorn Ln
    Boyertown, PA 19512
    (610) 367-8884
    General Practice Attorneys
    Patterson Cody & Winters
    470 Locust St
    Columbia, PA 17512
    (717) 684-8800
    General Practice Attorneys, Attorneys, Criminal Law Attorneys, Legal Service Plans
    FitzPatrick Law Group, LLC
    1235 Westlakes Drive Suite 295
    Berwyn, PA 19312
    (610) 400-8766
    Attorneys,  Criminal Law Attorneys,  Family Law Attorneys,  Estate Planning, Probate, & Living Tru
    Spyra Dennis J
    525 Broad Ave
    Belle Vernon, PA 15012
    (724) 930-8584
    Attorneys, Legal Service Plans
    Mazzei & Assoc
    212 State St
    Belle Vernon, PA 15012
    (724) 929-8004
    Bankruptcy Law Attorneys, Bankruptcy Services, Attorneys
    Cummings Glen P
    3915 Mount Troy Rd
    Pittsburgh, PA 15212
    (412) 822-7530
    Attorneys Support & Service Bureaus
    Glenn P Cummings
    3915 Mount Troy Rd
    Pittsburgh, PA 15212
    (412) 822-7530
    Attorneys Referral & Information Service, Attorneys, Legal Service Plans
    Murphy Robert J
    208 Chestnut St
    Dunmore, PA 18512
    (570) 343-7444
    Attorneys,  Family Law Attorneys,  Estate Planning, Probate, & Living Trusts,  Accident & Property
    Orlando Jr Eugene
    300 E Philadelphia Ave
    Boyertown, PA 19512
    (610) 367-7443
    Elder Law Attorneys,  Attorneys,  Real Estate Attorneys,  General Practice Attorneys
    4 Northshore Assoc
    106 Isabella St
    Pittsburgh, PA 15212
    (412) 359-7390
    Banta Lynn
    3282 Memorial Hwy
    Dallas, PA 18612
    (570) 675-7200
    Montgomery McCracken Walker & Rhoads LLP
    1235 Westlakes Dr Ste 200
    Berwyn, PA 19312
    (610) 251-7200
    Accident & Property Damage Attorneys, Attorneys, Legal Service Plans
    Wade Law Office
    1211 Monterey St
    Pittsburgh, PA 15212
    (412) 322-7200
    General Practice Attorneys, Attorneys, Legal Service Plans
    D'Andrea Joseph R
    320 N Blakely St
    Dunmore, PA 18512
    (570) 207-7113
    Criminal Law Attorneys, Attorneys, Legal Service Plans
    Attorney William D. Thompson
    320 North Blakely Street
    Dunmore, PA 18512
    (570) 207-7108
    Attorneys, Corporation & Partnership Law Attorneys, General Practice Attorneys, Employee Benefits &
    Dinello Darrin C
    5405 Jonestown Rd Ste 101
    Harrisburg, PA 17112
    (717) 909-6730
    General Practice Attorneys, Attorneys, Legal Service Plans
    Mccormick, Doug Travis Law Firm
    102 Lorna Ln
    Edinboro, PA 16412
    (814) 734-6076
    Attorneys,  Accident & Property Damage Attorneys,  General Practice Attorneys,  Legal Service Plans,
    Kelly Parker & Cohen
    5425 Jonestown Rd Suite 103
    Harrisburg, PA 17112
    (717) 746-6056
    Immigration Law Attorneys,  Attorneys,  Criminal Law Attorneys,  Legal Service Plans,  Administrativ
    Richardson Jane
    1436 Lancaster Ave # 240
    Berwyn, PA 19312
    (610) 647-5800
    12Law.com   |  NASHVILLE, TN USA   |  CONTACT US