Should your LLC elect to be treated as a Corporation with the IRS? How do you make that election? Does a separate form election need to be filed with the state? Does your state accept federal elections? Is an election required to be filed so your company is subject to partnership taxation requirements?
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Benefits of a Limited Liabilty Company (LLC)
A limited liability company is a legal entity which is created under state laws in the United States. It is used primarily for operating a business or holding property such as real estate, stocks and other assets. It is often referred to by its acronym LLC. The main reason for using one is to create an independent and separate vehicle to run and conduct activity. This separation from the owners of the limited liability company creates a layer of personal liability protection for the owners. If you start and run a business without forming a legal entity such as an LLC, you are completely and fully personally liable for anything related to your business. A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Rosedale & Drapala, CPAs understand the state's requirements and the federal tax regulations that will impact your business.
The LLC is similar to a corporation when it comes to providing personal asset protection. However it provides the owners of the business with flexibility as to how it will be treated for tax purposes. There are advantages and disadvantages to each choice, depending on the type of business and circumstances of the owners. Based upon YOUR particular situation, Rosedale & Drapala, CPAs can help you make the right choice.
An LLC can take different forms for tax purposes. An LLC with one owner, or "member", is referred to as a disregarded entity for tax purposes. And this "disregarding" means that the LLC's activities are reported on its owner's regular income tax return on a Schedule C, E or F, the same form a sole proprietorship files. Single-member LLC scan also elect to be treated as a regular corporation, called a C corporation, or can elect to be treated as an S corporation. An LLC with multiple owners, or "members", can be treated as a partnership for tax purposes filing on IRS Form 1065. This type of LLC offers automatic and unqualified pass through taxation and may result in less taxes and the ability to pass through losses that can be used by the owners of the business to offset other income in various circumstances. Multiple-member LLCs also can elect to be treated as an S corporation and file their tax returns on Form 1120S.
To request more information about LLCs, contact Rosedale & Drapala, CPAs today.
Benefits of a Partnership
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return (Form 1065) to report the income, deductions, gains, losses, etc. from its operations, but it does not pay federal income tax at the entity level. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return. Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.
There are two types of partnerships.General partnerships and limited partnerships. In general partnerships, all the partners are personally liable for the debts of the business. Creditors can go after the personal assets of any and all of the partners to satisfy partnership debts. In limited partnerships, only the general partners are personally liable for the debts of the business.
Limited partners are only liable to the extent of their investments in the business plus their share of recourse debts and obligations to make future investments. Partnerships can be informal agreements to share profits and losses but limited partnerships must have formal partnership agreements that comply with state law requirements.
To learn more about when your business should operate as a general or limited partnership, contact Rosedale & Drapala, CPAs.
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Whether you have a business or are thinking about starting a business, let Rosedale & Drapala handle all of your, tax and accounting needs. We have been working with local businesses just like you for over 25 years.
We can help you with new business setups, bookkeeping services, QuickBooks, S Corporation, partnership and LLC tax preparation services. Tax compliance services including payroll and sales taxes.
Rosedale & Drapala, CPAs is a member firm in the Private Practice Division of the American Institute of Certified Public Accountants (AICPA).