23 Apr An LLC and Filing Taxes in Arizona
In our last blog post we talked about two different kinds of Limited Liability Companies, or LLCs: Member-Managed or Manager-Managed. Phelps LaClair (with offices in Phoenix, Chandler, and Mesa) is ready to help you determine the right LLC for you. If you’re looking to begin a business, let us come alongside and get you started on the right foundation.
If you’re a small business owner, there are several good reasons to consider forming a Limited Liability Company. As the name implies, an LLC generally protects the owners of from personal liability for any debts incurred as part of business operations. If an LLC business doesn’t go as planned and a financial burden results, an LLC may help protect the owners from loss of personal possessions and personal finances as a result of business debt.
Tax Filing and an LLC
Another aspect of LLCs that can be helpful for small business owners to know is how the taxes for an LLC are filed. First, since the LLC business model is somewhat new to the IRS, they don’t actually have a specific category for LLC filing. So, if your LLC has only one owner (also called a member), the IRS will tax it in the same way that a sole proprietor business is taxed. An LLC that has more than one member will be taxed in the same way a partnership is taxed. But with both of the above LLCs (one member, or more than one member) the members won’t need to file a separate business tax return. Instead, the profits and losses are reported on the personal tax returns of the LLC members. The term used to describe the filing of business profits and losses on personal tax returns in this way is called, “Pass-Through Taxation.”
The Right Form
LLCs with a single owner (member), use a schedule C to file their business as part of their personal tax return. This business income and loss information is then added to any other personal income on their tax return.
LLCs with more than one member will use a different tax form(s) to report their business income. Remember, in the eyes of the IRS, this filing is treated in the same way as a partnership, and for that reason, this LLC files a Form 1065. The individual members of this particular LLC will calculate their part of the business income on a Schedule K-1 form, and include this form with their individual tax return.
To make matters a bit more complicated, if an LLC wishes to change their classification, it is possible for them to file as a corporation. If the LLC goes in this direction, they’ll need to file Form 8832 with the IRS. There may be benefits for certain businesses in choosing this option.
Understanding Whether an LLC is Right for You
There’s more to understanding whether your company would best be served by being set up as an LLC, or whether you’d benefit by establishing a corporation. We’ll be glad to sit down with you, discuss your company, and help you discern if an LLC is the right choice. Give us a call at Phelps LaClair in Arizona. We’ve been giving businesses a good start for years.
Images used under creative commons license – commercial use (4/4/2018) Hamza Butt (Flickr)