Can You File an LLC with Personal Taxes?

By Tom Speranza, J.D.

Can You File an LLC with Personal Taxes?

By Tom Speranza, J.D.

A limited liability company (LLC) is a type of business entity that combines the liability protection of a corporation with the flexible structure of a partnership. Most entities are taxed like partnerships or sole proprietorships: they pass their income and losses through to their owners, called members, who then report such amounts on their personal tax returns.

Man signing documents at a table

The ownership structure and its tax elections determine whether the members can include the LLC on their personal tax returns and which tax forms to file.

Number of Members

An LLC that has one member and did not file an Entity Classification Election (Form 8832) with the U.S. Internal Revenue Service (IRS) to elect corporation tax status is a disregarded entity for federal tax purposes and is taxed like a sole proprietorship, including for self-employment income.

Single-member LLCs report business income, loss, and expenses on the member's individual tax return using Profit or Loss from Business (Form 1040, Schedule C) or Net Profit from Business (Form 1040, Schedule C-EZ) and, when applicable, Supplemental Income and Loss (Form 1040, Schedule E) and Profit or Loss from Farming (Form 1040, Schedule F). The member is not an employee of the company, so Self-Employment Tax (Form 1040, Schedule SE) is filed with the annual return to report self-employment income, and quarterly estimated tax payments are filed with Estimated Tax (Form 1040, 1040-ES).

One with two or more members that did not elect corporation tax treatment is a partnership for tax purposes. Those that are taxed as partnerships file a U.S. Return of Partnership Income (Form 1065) and report income or loss to the members using Schedule K-1: Partner's Share of Income, Deductions, Credits, etc. (Form 1065, Schedule K-1). The members then use the K-1 to include the income or loss on their individual tax returns.

Electing Corporation Tax Treatment

If the business has filed Form 8832 to elect either S corporation or C corporation status, the connection of the business to the member's personal tax return is different. Businesses that elect S corporation tax treatment file a U.S. Income Tax Return for an S Corporation (Form 1020S). Because S corporations pass their income through to the members like partnerships, LLCs making this election report income or loss to the members using Schedule K-1. The members then use the K-1 to include the income or loss on their individual tax returns.

Those companies electing to be taxed as a C corporation file a U.S. Corporation Tax Return (Form 1120) and do not pass their income or loss to the members. The members with a C corporation or S corporation election are usually salaried employees who receive an annual Wage and Tax Statement (Form W-2).

Material Participation and Passive Loss Rules

One of the big advantages of any pass-through entity is that it can enable the owners to deduct business-related expenses and operating losses from the other income they declare on their personal tax returns. However, the IRS imposes various limitations on the ability to offset income with business expenses and losses. For example, an owner must materially participate in the business to deduct its expenses and losses. In addition, the IRS considers certain business activity (owning rental property) to be passive, so you can only deduct the expenses and loss from business income and not personal income.

The IRS regulations in this area are detailed and complicated, and it makes sense to consult an accountant if you have trouble determining whether your personal tax return is fully compliant with assets and debts that are passed through your LLC.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.