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Attorney Thomas B. Burton explains how Limited Liability Company members can elect to be taxed as a corporation or a partnership with the IRS and talks about why many small business owners choose to be taxed as a partnership in order to receive flow-through taxation to their personal income tax return.
Transcript of Video: What is Flow-Through Taxation for an LLC?
Today's question what is flow through
taxation for an LLC flow through
taxation means that you would elect to be
taxed as a partnership for your LLC
partnership taxation applies to
partnerships as it implies but you can
also elect to be taxed as a partnership
if you're an LLC this means that each
member of the LLC will receive the
profits or losses of the LLC and a
schedule K-1 and they'll report those
profits or losses on their individual
income tax return they'll be taxed at
individual income tax rates on that
income this differs from corporate
taxation where you elect your LLC to be
taxed as a corporation if your taxed as a
corporation you will be taxed once at
the corporate level and then again if
the corporation distributes money to the
shareholders you would be taxed again at
the dividend tax rate for whatever you
distribute from the corporation talk
carefully with your lawyer about which
form is appropriate for you it depends
on what type of business you're going
into for many small one or two or three
member LLC's they often use flow through
taxation because of the benefits of
having it flow through and not having
corporate taxes at the top level but it
depends on your situation and what kind
of business you're opening there may be
other reasons you want corporate
taxation
for appreciation down the road or other
reasons so talk with your lawyer about
which one's appropriate for you just
know there's two ways to be taxed if
you're an LLC and flow through taxation
definitely applies this is similar to if
you open a sole proprietorship the
profits and losses flow through to you
on your individual tax return
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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