Every so often I get an email question about tax preparation. I’ll send those questions one of two places: (1) Information on how to become a client or (2) (if they want a free answer) over to the USTaxAid form. That way there is leverage from answering the question. Other people get the benefit from both the question and the answer.
I get versions of this question often enough that it’s worth a blog post. What tax form do you use for an LLC?
The reason there is so much confusion from this simple question is “It depends.” There actually is NO LLC tax form. There is a tax form for a Sole Proprietorship, a tax form for a Partnership, a tax form for an S Corporation and a tax form for a C Corporation. But there is no tax form for an LLC.
The LLC is a tax chameleon. You get to choose how you want to be taxed. If you don’t choose, the IRS will choose for you. If you have just one owner (called a single member), you will be a Sole Proprietorship if you’re business or a Schedule E if you have rental property. If you have partners (called multiple members), you will file a Form 1065 – Partnership return.
And that’s the short answer to why there is so much confusion. Don’t like how you’re being taxed? You can change it. Just make sure you tune into “How to Protect Your LLC” to verify you’re not making a fatal flaw with your Operating Agreement when you make the change.
How to Protect Your LLC
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Saturday, July 24, 2010
10 am Pacific, 11 am Mountain, Noon Central, 1 pm Eastern