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Mom on Dealz » Ask an Accountant » Ask An Accountant-LLC/S-Corp Confusion

Ask An Accountant-LLC/S-Corp Confusion

It’s tax time! My “Ask An Accountant” series should help with many questions that may arise. Remember, if you have a tax question, email my husband who is an experienced accountant at cjwtaxpro@gmail.com.

Instead of a question and answer this week, I’d like to attempt to clarify the confusion that seems to surround LLC/S-corp statuses and filing:

LLC stands for Limited Liability Company.  This is a legal classification of business not recognized by taxing authorities.  There are two general types, single member LLC and multi-member LLC.  Single member can only have 1 member, multi-member must have more than 1 member.

 An LLC’s main function is to provide a legal separation of business assets & liabilities from personal.  This legal strategy comes with certain tax attributes.  The LLC can provide unlimited losses without regard to the member’s basis (amount of money/property invested, earned & left in the business).  The LLC also pays Self-Employment tax on any profits (a very nasty 15% in addition to your normal tax rate).  Single member LLC files a Schedule C on your individual return; a multi-member LLC can opt to file a Form 1065 return (the same return as a partnership) or can elect to file Schedule C for the member’s potion of the Income or Loss.

 A “Tax Election” can be made for both the single member LLC and the multi-member LLC to be taxed as an S-corp.  The entities still operate as LLC’s but take on S-Corp tax attributes in that they no longer pay Self-Employment tax on the profit, but rather they report the income (from a K-1) on their personal tax return.  The downfall is that the losses are now limited by the member’s basis in the company.

 

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One Response to "Ask An Accountant-LLC/S-Corp Confusion"

  1. Erika says:

    About 7 years our LLC had a loss from a customer. We did go after him for the $40,000 that he was under contract to pay. Unfortunately the fees go to high for our small business. Looking back, we never claimed that loss on our taxes. Are we able to do so this year or has it been too much time in between?

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