How LLC Members are Taxed?

LLC(Limited Liability Company) is one of the most flexible entity. It allows its members many options that are not available as other legal entities.

LLC can elect to be taxed as: C Corp, S Corp, General Partnership or as a Disregarded entity(it files taxes as Schedule C along with personal tax return 1040)

How LLC Member are taxed depends upon how LLC as a entity is being taxed

Here are more details:

LLC Taxed as C Corp( Tax form 1120)

If LLC files an election to be taxed as C Corp, then LLC members will receive dividends from the C Corporation. As a result Members will pay tax on the dividends on their personal tax return by filing Schedule B.

LLC Taxed as S Corp(Tax Form 1120S)

If LLC elects to be taxed as S Corp by filing form 2553 then LLC members will receive form K1. They will include this form K1 along with their personal taxes on Schedule E Page 2 of their tax return 1040.

LLC Taxed as a General Partnership(Tax form 1065)

If LLC(Limited Liability Company) elects to be taxed as a general partnership then LLC members will receive form K1. They will include this form K1 along with their personal taxes on Schedule E Page 2 of their tax return 1040.

In Certain Cases:

If a LLC are owned by another LLCs or corporations, instead of individuals, then LLC will issue K1 to member entity. In this case Members will include this K1 when they file that entity’s return

LLC Taxed as a Disregarded Entity (Schedule C)

Typically this happens if there is only one shareholder in the LLC(or 2 spouses) that elects to be taxed as a disregarded entity.

As a result, Taxpayers will file form Schedule C along with their personal tax return 1040.

In Conclusion

How you as a member of LLC will be taxed, depends upon which form LLC files as an entity.

Each legal entity has their own advantages and disadvantages. so, its important that you learn more about each entity especially S Corp by reading our detailed article

S Corporation: Ultimate Business & Tax Guide

Written By:

Navjeet Chahal, EA