While not all small businesses take the same form, a large percentage of small businesses here in the U.S. are limited liability companies, or LLCs. There are certain tax regulations that apply to LLCs, and our team at TaxCom, LLC is thoroughly familiar with them. We are here to help you ensure that your LLC remains compliant with federal and local tax regulations, and in this article, we will go over a few things you should know about LLC taxation.
How LLC Taxation is Calculated
First, let’s go over how taxes on LLCs are calculated. If you are the sole owner of your LLC, the company itself will not have to file a tax return, but you will need to report all profits and losses on schedule C and submit it with your 1040 tax return. On the other hand, if you have an LLC with one or more partners, the IRS will calculate your share of the taxes based on your share of the company profits—in other words, if you own a 50% share, you will pay taxes on 50% of the company’s total profits for the year.
LLC Members Pay Self-Employment Taxes
The other key thing you should know about LLC taxation is that LLC members are considered to be self-employed, which means:
- No Medicare or Social Security contributions are withheld from their paychecks.
- They will have to pay self-employment taxes.
The current version of the rule states that those who take an active role in the business must pay self-employment taxes on their share of the profits, but those who only invested money but are not actively involved in the company can waive these taxes on their cut.