How LLCs report and pay federal income taxes

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For single member LLCs the owner simply files her regular 1040 and attaches

  • Schedule C, Profit or Loss from Business (Sole Proprietorship) to report allocated LLC profits or losses
  • Schedule SE, Self Employment Tax, to calculate self-employment (social security and medicare) taxes

For co-owned LLCs

  • the LLC prepares and files IRS Form 1065 (the same tax form used by a partnership) -- LLCs don't pay income taxes so this is just informational
    • use a standard double-entry bookkeeping with a journal of accounts that are periodically posted to a general ledger
    • the general ledger accounts are used to generate an income statement and balance sheet, both of which are needed to complete Form 1065
    • the form must also reconcile each member's capital account that shows their capital contributions, distributions, and allocations
    • Form 1065 includes Schedule K which reports the income, losses, credits, and deductions allocated to all members
    • Finally the LLC gives a Schedule K-1 (member's share of profits, losses and other items shown on the Schedule K) to each owner which is used to file an individual income tax return and attaches it to their 1040
  • Active owners in the LLC should pay self employment (social security and medicare) taxes. Inactive owners (i.e. non managing members in a manager managed LLC) probably will not have to pay self-employment taxes

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  • 10 months ago by vince