Florida LLC Taxes: An Overview
Florida LLC Taxes: An Overview
Limited Liability Companies (LLCs) are often chosen by entrepreneurs who are looking for a business structure with more flexible tax options. As they have no tax classification of their own, LLCs can select between the classifications offered to other business entities. Knowing the differences between these classifications is critical to setting your company up for success.
For an in-depth explanation on how to form your Florida LLC, take a look at our How-To article here.
How They’re Taxed
Do not waste your time looking for a specific LLC tax return form. They do not exist. LLCs that have not officially filed for a different tax status are known as “disregarded entities.” In these cases, they are treated as sole proprietorships or general partnerships, depending on the number of owners, who are known as members.
The Single-Member LLC Tax Return
As stated above, a single member LLC will automatically be taxed as if it were a sole proprietorship. The LLC’s income and expenses are reported on Schedule C of their personal income tax returns. Next, the net profit or loss will need to be reported under the income section of U.S. Individual Income Tax Return Form 1040.
Looking for more information on LLCs? Get answers to the most common questions here.
The Multi-Member LLC Tax Return
Whether you have two owning members or twenty, a multi-member LLC will be taxed like a general partnership. In this situation, the company’s income is reported by the members themselves on their personal tax returns. This is done with Form 1065, which is a type of return that reports the entirety of the partnership’s income and expenses. A Schedule K-1 will then be issued to each member that displays each member’s share of the profit. You should also be sure to include a breakdown of each member’s percentage shares in your LLC’s operating agreement.
Taxes for the Self-Employed LLC Owner
For federal taxation purposes, the IRS considers the members of LLCs that are taxed like sole proprietorships or general partnerships to be self-employed. This can sometimes complicate things. You might already know that when you are working for someone else that it is the responsibility of your employer to cover half of your Social Security and Medicare taxes. The self-employed, on the other hand, must pay these taxes in full. However, they can find some welcome relief by deducting half of their Social Security and Medicare taxes from their own income on their annual tax returns.
This is all done by filing Schedule SE, Self-Employment Tax, along with your tax return for the reporting and calculation of self-employment taxes. Self-employed members are also required to make what are known as “estimated payments” on their Social Security, Medicare, and personal income tax every quarter. Fines and other penalties await those who don’t comply.
S-Corp and C-Corp Taxation
LLCs can also elect to be taxed as Corporations, or more specifically, as either a C Corporation or an S Corporation through Form 8832, Entity Classification Election. These tax structures can be a little more complicated than the ones we’ve already discussed, so you might want to consult with a business attorney or accountant before making any final decisions. Corporate tax structure can be especially advantageous to businesses that are looking to save capital each year to finance growth or other projects. It also provides an avenue for reducing self-employment taxes for owner/employees who end up with profits that exceed what would be considered a reasonable salary.
C Corporate status requires that the LLC file corporate income tax returns each year. Additionally, shareholders must also report any salary or dividends on their personal tax returns.
LLCs with S Corporation status, on the other hand, have a fair amount in common with general partnerships in this regard. They too file an informational tax return and provide their members with Schedule K-1 forms to show their cut of the profits or losses. Unlike a partnership, the members must then report their income under Schedule E of their personal tax returns.
Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website or calling 727-279-5037.