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Federal taxation of an llc

In addition, if an LLC’s business is continued in a new form such as a corporation or sole proprietorship, the LLC is terminated for tax purposes (Sec. You’ll each pay the taxes on $5,000 profit. After being taxed at the corporate level, profits are taxed again on the shareholders’ individual tax returns. . LLC profits are taxed once on the owners’ individual tax returns. Ongoing state requirements. Why You Might Choose S Corp Taxation for Your LLC. Both are generally pass-through tax entities, but S corps must file a business tax return. If you decide to form an LLC to own and operate your small business, you have a couple of choices for how you want your LLC to be taxed. An LLC classified as a partnership is terminated for tax purposes if its business is discontinued and its assets are distributed to its members. 708(b)(1)). For federal income tax purposes, there is no such thing as being taxed as an LLC. An LLC must only file a business tax return if there is more than one owner. However, profits from professional corporations are taxed twice. If your LLC is yours and yours alone, you’ll pay those taxes on …Tax Basis in LLC Interest In general, the initial tax basis of a member who acquires an LLC interest from the LLC will be equal to the amount of money and the tax basis of any property that the member contributes to the LLC in exchange for such interest. The corporation must withhold federal income and employment tax from the owner/employee’s pay, and pay state and federal unemployment taxes and Social Security and Medicare taxes on the employee’s behalf. Instead, an LLC can be taxed like a sole proprietorship, a partnership, a C corporation or—if it qualifies—an S corporation. LLC’s and S Corp’s are separate legal entities created by filing papers with the state. Pass-through taxation. So, say your LLC has four partners with an equal share of the company. This means if your LLC makes $20,000 profit, you’re paying the taxes on your share of that profit in your personal tax return. An LLC or LLP that is treated as a corporation, including an S corporation, for federal income tax purposes will be treated as a corporation for New York tax purposes or as a New York S corporation if the New York S election is made (or if it is a mandated New York S corporation)

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