LLC: TAXED AS A PARTNERSHIP OR CORPORATION? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Q  Please settle a bet: My friend says that LLCs are taxed like partnerships; I say they’re taxed as corporations. Who’s right? D.M.B., Austin, Texas

A  In effect, you both are. Like a partnership, a limited liability company (LLC) is a pass–through entity. All of the LLC’s profits and losses are passed through to the owners(members), who report the information on their personal tax returns. The LLC itself doesn’t pay federal income tax (although reporting is required), but some states impose an annual tax on LLCs. Alternatively, you can elect to have an LLC taxed as a C corporation by filing Form 8832 and checking the appropriate box. Due to the corporate tax rate structure, that may reduce your taxes overall. Tip: A single-member LLC is generally treated like a sole proprietorship for tax purposes.

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