Unofficial Tax Guide

LLC tax deductions are not recognized by the federal government as deductible tax and because of that all entities who term themselves LLC or limited liabilities companies must figure out how to pay their federal taxes. The LLCs have three options, they can choose from. They can either file returns either as a corporation, a partnership or sole proprietorship. Typically the federal government classifies LLCs as corporations and taxes them likewise.

LLCs are companies that have been formed under a State or Federal statute or under the statute of a federally recognized Indian tribe wherein they have been described either as a corporation, body corporate or body politic or a joint stock association. The same is true of businesses owned by state, foreign governments or entities described in section 1.892.2-T. Any association formed under regulations section 301.7701-3 is also seen as a corporation by the federal government, just as are insurance companies.

If the LLC filing is not a corporation then it can file Form 8832 and elect to conduct business either as a corporation or a partnership. Any business with at least 2 members can choose to file as an association taxable as a corporation or a partnership. Similarly, a business entity with a single member can choose to be classified as an association taxable as a corporation.

If the LLC doesn’t use file Form 8832, there are default rules come into play. The default rules provide the LLCs that have at least two members and do not specify itself as a corporation then by default it will be considered to be a partnership, and will be required to file taxes as one. This applies similarly to an LLC that has only one member. They will have to file taxes as a sole proprietorship.

Therefore it’s very important for all LLC’s to file Form 8832, and to receive the tax benefits that accrue to them. Just as important, to get the maximum benefits the LLC’s should use the assistance of tax consultants.