Texas Legal Entities
Income Taxation of an LLC
Limited Liability Corporations file Form 1065 with the Internal Revenue Service as well as Schedule SE (Self-Employment Tax). The organization and operation of an LLC is determined by the articles of organization as well as an operating agreement. The operating agreement is a contract between members and those who govern the company.
In certain situations, the members may choose for the LLC to be taxed like a corporation. This would mean the entity’s income to be taxed prior to dividends or distribution to the members and then dividends or distributions after received by members would be taxed separately.
If the operation of the LLC is in the form of a partnership, proper US federal partnership tax forms are required. The taxation process can be quite complex as the entity’s income and deductions credited to each individual member are reported on that member’s tax return.
The tax advantage of an LLC might be lost without a partnership structure. If there is a one-member owner, and he invests in real estate with the LLC, he could be taxed as an individual and an owner, resulting in double taxation. By law, a Limited Liability Company with a single corporate member is treated as an incorporated branch has its income and deductions reported on the corporate tax return. It is important close attention is paid when filing taxes to prevent unfair double taxation.
For more information regarding your legal rights in filing taxes, contact the law offices of Slater & Kennon, L.L.P. at 512-472-2431 today.
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