Attorney Thomas B. Burton explains how "Flow Through" taxation works for an LLC that elects to be taxed as a partnership and discusses why flow through taxation can avoid the "double taxation" potential of a C corporation.
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Transcript of Video: What is Flow Through Taxation for a Limited Liability Company (LLC)?
Today's topic what is flow through
taxation with an LLC and why might I
want it flow through taxation is the
concept that all income and expenses
from an LLC can flow through to you on
your personal tax return if you form an
LLC and you elect partnership taxation
this means you will be treated as a
pass-through entity therefore just like
a sole proprietorship all the income and
expenses of your business will flow
through to a Schedule C that you file
on your own personal tax return that's
for a situation where you're the sole
member of the LLC now let's contrast
that with a C Corp which is not flow
through taxation and this is where you
sometimes hear about double taxation a C
Corp pays taxes at the corporate level
then the owners of the C Corp take
dividends from the corporation they get
taxed on those dividends again at the
individual level that's why it's
referred to as double taxation so if
you're a very small business one or two
owners you often don't need that two layers
of taxation there are certain instances
where you might want to be a C Corp such
as a technology company seeking angel
financing or seed investment other
specific situations where you plan to go
public if that's your situation make
sure you talk about what you want to
accomplish with your lawyer but for the
vast majority of small businesses that
plan to remain a small business one or
two owners flow through taxation
especially when they're getting going makes a
lot of sense
and again flow through taxation is the
concept that the income and expenses
from your business inside of your LLC
flow through to you on your personal
income tax return and that in a nutshell
is flow through taxation for an LLC
great question and thanks for asking
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Transcript and captions provided for ease of access for the hearing impaired.
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