The Limited Liability Company (LLC) is the most versatile business structure going these days. And because there are so many choices, it’s often misunderstood.
Ever so often, we get the question, “What tax return do I use for my LLC?” And the answer is “it depends.” That’s my favorite answer when it comes to tax situations.
In this case, though, it’s definitely true. That’s because there is no specific tax return for an LLC. So when someone says they need to file a tax return for their LLC or that they want to know how their LLC is taxed, there is no way to respond without having more information.
If you form an LLC and do not elect how to be taxed, then you will have a default tax situation determined by the IRS. If you have just one owner, ie a single member, then your business will be taxed as a Schedule C and your real estate as a Schedule E. If you have more than one member, you are taxed as a partnership and use Form 1065.
But it doesn’t stop there. You can also elect how you want to be taxed. Generally we recommend an S Corporation or a C Corporation for business purposes. You can file an election with the IRS to elect those statuses. In that case, your LLC taxed as an S (an LLC-S) would file a Form 1120-S and an LLC-C would file a Form 1120.
The LLC takes on whatever tax characteristics that entity they’ve chosen has. So, an LLC-S is just like an S Corp when it comes to tax matters.
Once you’ve selected though, you need to stay with that tax selection for 5 years in most cases.