What taxes does an LLC pay?

The taxes that an LLC pays depend on how it elects to be taxed. LLCs may elect to be taxed as a sole proprietorship, partnership, S corporation, or C corporation.

If an LLC elects to be taxed as a sole proprietorship or partnership, the profits and losses of the business are passed through to the individual members and taxed at the individual level. This is known as “pass-through” taxation. The individual members of the LLC are responsible for paying income taxes on their share of the profits, as well as self-employment taxes if they are actively involved in the business.

If an LLC elects to be taxed as an S corporation, the profits and losses of the business are also passed through to the individual members and taxed at the individual level. However, the LLC must meet certain requirements to qualify for S corporation status, including having no more than 100 shareholders and only one class of stock.

If an LLC elects to be taxed as a C corporation, the profits of the business are taxed at the corporate level and any dividends paid to shareholders are taxed again at the individual level. This is known as “double taxation.” The C corporation is responsible for paying corporate income taxes on its profits, and the individual shareholders are responsible for paying taxes on any dividends they receive.

In addition to income taxes, LLCs may also be subject to other taxes, such as sales tax, property tax, and employment taxes if they have employees.

It’s worth noting that the rules for LLC taxation and the types of taxes that an LLC is required to pay may vary depending on the jurisdiction. LLCs should consult with their tax advisors and local tax authorities for more information about the specific taxes that apply to their business.

Prominent Financial Consultants offers a range of services to help our clients succeed, and we would love the opportunity to discuss how we can help you. If you would like to schedule an appointment with us, please schedule a free 15 Minute Financial Clarity Call so that we can learn more about your needs and goals or schedule your tax appointment here.