LLC Taxation - Explained
Partnership vs Corporate Taxation
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Table of ContentsHow is an LLC taxed?How to Choose how an LLC is taxed?When Can I Make an LLC Tax Election?How do I ask for Special Authorization to Change LLC Tax Election?Does the LLC File a Tax Return?Academic Research
How is an LLC taxed?
The members of an LLC may choose to be taxed as a partnership or a corporation.
How to Choose how an LLC is taxed?
If the members do not make a formal tax election with the IRS, the default tax status is as a partnership (or, if there is only one member, the member will be taxed as sole proprietor). To be taxed as a corporation, the members must file a form 8832 "Entity Classification Election". The IRS will give notice of whether the election is accepted within 60 days.
When Can I Make an LLC Tax Election?
The members can make a tax election when the LLC is formed. If no election is made, the default rule is that the LLC will be taxed as a partnership (or sole proprietor - if only one member). The members may then make a tax election at any time. Once an election is made, the IRS will not allow the entity to change its election for a minimum of 60 months, without special authorization.
How do I ask for Special Authorization to Change LLC Tax Election?
You can contact the IRS by petitioning for a private letter ruling.
Does the LLC File a Tax Return?
Yes. But only if the LLC has more than one member or is taxed as a corporation. If the LLC is taxed as a sole proprietorship, the entity does not file a return. The sole member reports the activity of the LLC on her personal tax return.
The partnership taxes are filed on Form 1065. The corporate taxes are reported on Form 1120.