A limited liability company (LLC) is a business entity that provides the company owners with limited liability protection. The tax requirements of an LLC are based on the number of members. While a single member LLC is taxed like a sole proprietorship, the tax requirements of a multiple member LLC are similar to those of a partnership. The owner of a single member LLC must report the income of the business on their personal tax return. Each member of a multiple member LLC is required to report their portion of the business income on a personal return while the business entity itself must comply with certain other tax requirements.
The specifics of limited liability company tax:
- Members of an LLC are considered to be self-employed and must therefore pay self-employment taxes which are calculated using schedule SE.
- The income of a single member LLC is reported on the owner’s personal tax return using Form 1040 and Schedule C.
- Each member of a multiple member LLC must report their share of the profits or losses of the business on their personal tax return.
- A multiple member LLC must file a K-1 for each LLC member and must submit an information return for the business on Form 1065.
If an LLC has employees, the entity must pay employment taxes, including federal and state withholding taxes, unemployment taxes, Medicare and Social Security taxes and workers’ compensation taxes. Like all other business entities, a limited liability company must also pay sales and excise taxes wherever applicable.