LLC Tax Basics
LLCs are not taxed at the business level. Instead, LLC profits and losses "pass through" the business to the owners, who report that income on their personal tax returns.
Taxation of Single-Member LLCs
The IRS considers a single-member LLC to be a "disregarded entity." That means the LLC itself does not pay taxes. Rather, the single member reports business profits/losses on their personal tax return.
Taxation of Multi-Member LLCs
By default, the IRS treats multi-member LLCs as partnerships. The profits, losses, and self-employment tax liabilities "pass through" to LLC members based on ownership percentage. Members then report on their personal returns.
LLC Tax Rates
LLC owners pay taxes at personal income tax rates, ranging from 10% to 37%. Owners also owe self-employment taxes of 15.3% on the first $147,000 of LLC earnings.
Taxation of LLCs as Corporations
LLCs can elect to be taxed as S or C corporations. C corporations pay corporate taxes on profits. S corporation profits pass through without tax, but reasonable salaries paid to owner-employees are subject to payroll taxes.
Payment Methods for LLC Owners
As an LLC owner, you can get paid in various ways. For single-member LLCs, owners can take draws from profits. For multi-member LLCs, partners divide draws and distributions. LLCs taxed as corporations require owners to take salaries meeting IRS requirements, in addition to draws.
Tax Savings Strategies for LLCs
Single-member LLCs can save on taxes by taking advantage of business-related deductions on the owners’ tax returns. LLCs offer flexibility in legal IRS designation. Single-member LLCs are taxed as sole proprietorships. Multi-member LLCs default as partnerships but can elect corporation status.