A Limited Liability Company (LLC) is a business entity organized in the United States under state law. Generally, this form of business association allows the owner (with certain exceptions) to limit their liability for the business activity to the assets of the business and not the personal assets of the business owner.
Note: LLC is a state designation, not federal. The LLC designation in itself doesn't determine the kind of federal return the business will use.
An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301.77013. See Publication 3402 - Taxation of Limited Liability Companies.
The type of return that a LLC will file depends on its ownership structure and the elections that the owner(s) make. As a result, a LLC may, depending on the situation, be required to file
- Form 1065 - U.S. Return of Partnership Income, or
- Form 1120 - U.S. Corporation Income Tax Return, or
- Form 1120S - U.S. Income Tax Return for an S Corporation, or
- Schedule C (Form 1040).
The IRS has established default filing classifications for a LLC which are as follows:
- Generally, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return, typically using Schedule C (Form 1040), or if a farm using Schedule F.
- If the LLC has two or more owners and it makes no other election, it will be treated as a partnership for federal income tax purposes and should file Form 1065, U.S. Return of Partnership Income. This includes married couples that jointly own the LLC.
However, a LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules stated above. A LLC can file a Form 1120, U.S. Corporation Income Tax Return, only if it has filed Form 8832 - Entity Classification Election to elect to be treated as an association taxable as a Corporation. If the LLC elects to be classified as a Corporation by filing Form 8832, a copy of the LLC's Form 8832 must be attached to the federal income tax return of each direct and indirect owner of the LLC for the tax year of the owner that includes the date on which the election took effect.
Before filing Form 8832, read all of its instructions, especially with respect to the form's timeliness requirements, the effect of the election on the entity's reporting requirements, and the impact of nonacceptance of the election.
A LLC can also elect classification as an S Corporation and file Form 1120S - U.S. Income Tax Return for an S Corporation. In this case, the LLC should file Form 2553 to elect classification as an S Corporation. See: Form 2553 - Election by Small Business Corporation. An LLC electing classification as an S Corporation isn't required to file Form 8832 to elect classification as a corporation before filing Form 2553. By filing Form 2553, an LLC is deemed to have elected classification as a Corporation in addition to the S Corporation classification.
Note: This is a guide on entering a Limited Liability Company's tax return into the TaxSlayer Pro program. This is not intended as tax advice.