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Many small business owners form LLCs to avoid the "double taxation" of a corporation. In a C Corporation, the IRS taxes profits at the corporate level and dividends at the shareholder level. In contrast, LLC owners can choose whether they would like the IRS to tax their business as a sole proprietorship, partnership, C Corporation, or S Corporation.
Unless the owner of the company specifically elects to do otherwise for tax purposes, the IRS will automatically classify a single-owner LLC as a sole proprietor or a multiple-member LLC as a partnership without any special tax election. Owners report their profits or losses on Schedule C of their personal tax returns (usually Form 1040).
Though the LLC itself does not pay taxes to the IRS, an LLC taxed as a partnership does have additional requirements. LLCs taxed as partnerships file Form 1065 "U.S. Partnership Return of Income" with the IRS and issue each owner a Schedule K-1 to report their share of profit or loss.
Owners may also elect to be taxed as a:
Learn more about how LLCs are taxed. If you are unsure how you want the IRS to tax your LLC, you can still form your LLC now and choose its tax classification later once you've consulted with a tax advisor.
Form your LLC today, or speak with an LLC.com Business Consultant at 1-866-963-7708 (toll-free) or 302-636-5457.