What Form Does an LLC File With the IRS?

By Joseph Scrofano

Limited liability companies (LLCs) are unique business entities that offer owners flexibility in taxation. LLC owners, known as members, have options when it comes to tax treatment. LLC owners can elect to be taxed like a sole proprietorship/partnership or they can elect to be taxed like a corporation. How the members elect the IRS to tax them dictates what form they must file with the IRS.

Tax Differences

Sole proprietorships and partnerships are unincorporated business entities. As such, they do not have a separate legal identity from the owners. Accordingly, owners of these types of business entities get taxed personally on the profits and income they make from their businesses. This form of taxation is referred to as “flow through” taxation. A corporation, on the other hand, is considered a separate legal entity with its own independent existence from its owners. Therefore, a corporation gets taxed on profits it makes in addition to the shareholders who get taxed again for any income or profit they make from the corporation.

Tax Election

The IRS presumes an LLC wants flow through taxation. That means a single member LLC gets sole proprietorship tax treatment while a multi-member LLC gets taxed like a partnership. However, in the event the members want corporation tax treatment, they can elect this option by filing IRS Form 8832. The members must all sign the form. Members can use Form 8832 to elect what tax treatment they want and also change their existing tax treatment such as from a partnership to a corporation. If the LLC chooses to file as a corporation, it generally must file Form 1120, U.S. Corporation Income Tax Return.

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Sole Proprietorship

A single member LLC can elect to be taxed like a sole proprietorship. In that case, the single member reports all net income and losses of the LLC on her personal tax return. Generally, the form that the member must file is IRS Form 1040 Schedule C. However, different types of income may require the member to file a different schedule. Real estate rent and royalties income require Schedule E. Farming income requires Schedule F. In addition, the member must file Schedule SE, which is used for self-employment tax.

Partnership

If a multi-member LLC does not elect corporation taxation, it must file like a partnership. The appropriate form for partnerships is IRS Form 1065, which reports the assets and transactions of the LLC and calculates each member's income from the business. The LLC must provide each member a Schedule K-1 (Form 1065-B), which is like a W-2 for partnerships. Each Form 1065-B must be attached to the 1065 return. If the LLC has non-member employees, then it must collect W-4 forms from employees and issue W-2’s for all employees’ wages, salaries and tips. Any non-regular employees, like independent contractors, must get a 1099 from the LLC.

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Tax Differences of LLCs & PCs

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How to Report Income as an LLC Member

Unless the members of an LLC elect otherwise, the IRS treats an LLC as a pass-through entity for tax purposes. This means that income for LLCs is reported on the personal tax return of the owner or owners, called members. Multiple member LLCs are taxed as partnerships, with each member's individual tax returns reflecting a share of gains or losses of the partnership. An LLC, however, can also elect to be taxed as a corporation.

How do I Report Income From an LLC?

A limited liability company, or LLC, is a “hybrid” type of business organization that combines the limited liability benefits of a corporation with the pass-through taxation and relaxed reporting requirements of a partnership. The LLC is a creation of state legislatures, and the Internal Revenue Service does not explicitly recognize LLC’s for the purposes of federal taxation. Depending on the status of your company, the IRS classifies LLC’s as a sole proprietorship, partnership or corporation. Understanding how your LLC is classified for federal taxation purposes is important to knowing how to report your LLC’s income.

Do LLCs Have to File a 1099?

One of the major benefits to organizing as a limited liability company, or LLC, is the advantage of pass-through entity federal taxation. LLC profits are only taxed by the IRS once, on the tax returns of individual LLC members. However, the advantage of pass-through entity federal taxation does not exempt an LLC from the IRS's stringent reporting requirements, and an LLC must use IRS Form 1099 if it pays income to individuals other than wages, salaries and tips.

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