From the course: Running a Web Design Business: Defining Your Business Structure

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Understanding tax election for LLCs

Understanding tax election for LLCs

From the course: Running a Web Design Business: Defining Your Business Structure

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Understanding tax election for LLCs

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In this video we'll examine how LLCs are taxed. As we talked about earlier in this course, an LLC business is not considered an independent legal entity. This means that the business is not taxed separately from its owners. The IRS by default classifies LLC's, with only one member as a these regarded entity, and taxes it like a sole proprietorship, and it classifies LLC's with two or more members as a partnership and taxes it accordingly. If an LLC doesn't want to be taxed by this default classification rules, it can complete and file IRS form 8832, Entity Classification Election, to elect to be taxed as a C-corporation, a partnership or as a disregarded entity. On the other hand, for an LLC to be taxed as an S-corporation, you need to fill out IRS Form 2553, Election by a Small Business Corporation. However, before you file form 2553 you need to be aware that some states don't recognize LLC tax as an S-corp. You will have to contact your state income tax office and ask them if S-corp…

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