As a classification the LLC tax deduction isn’t recognized by the federal government. Consequently all entities who call themselves LLC or other limited liabilities companies must model out how to pay their federal taxes.
These companies have three possibilities. They can file their returns as a corporation, a partnership or as a sole proprietorship. Actually, the federal government’s classification lists certain LLCs as corporations and taxes them accordingly.
These LLCs are the ones which have been produced under a State or Federal statute or under the statute of a federally which has been acknowledged Indian tribe in which they’ve been described either as a corporation, body corporate or body politic or a joint stock society. The same is valid for businesses described in section 1.892.2-T which are owned by state, foreign governments or entities. Any organization formed under Regulations section 301.7701-3 is also regarded as a corporation by the federal government as are insurance companies for example.
In the case where the LLC is not a company then it can file Form 8832 and choose to carry out business either as a company or as a partnership. At least 2 members in a business can be classified as an association which is taxable as a corporation or a partnership. Also, a trade unit with only one member can opt to be classified as an association which will be taxable as a corporation.
If Form 8832 isn’t filed by the LLC, then certain default rules come into play. These rules put forward that if at least two members work within the LLC and that it does not specify itself as a corporation, then, by default, it will be considered to be a partnership, and will be asked to file its taxes as one. Correspondingly, if an LLC has only one member, it will have to file taxes as a sole proprietorship.
Form 8832 is therefore of major importance for all LLCs to file, in order to receive the tax benefits that are due to them. Also, getting the help of tax consultants can lead you to get the maximum benefits of the LLCs.
Elliott Dawson is a contributing editor at DebtFinanceArticles.com. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.