LLC Taxation and Benefits
Owners of LLCs are usually taxed as self-employed business owners. LLC owners must pay self-employment tax on the LLC’s net income, which includes Social Security and Medicare taxes. Unless a corporate tax structure is elected, LLC owners are considered self-employed and must pay self-employment tax. However, LLCs offer more legal protection than sole proprietorships. LLC members are considered self-employed rather than employees and are responsible for paying estimated taxes on their share of LLC profits.
Self-Employment vs. LLC
Owners of LLCs are taxed as self-employed and pay self-employment tax on income, which includes Social Security and Medicare contributions. LLCs offer more protection than sole proprietorships, and LLC members are responsible for paying estimated taxes on profits.
LLC Income and Self-Employment Taxes
LLC owners pay self-employment tax on income, separate from income tax. Unless a corporate tax structure is elected, LLC owners are considered self-employed, subject to self-employment tax. The income of a Disregarded Entity LLC is subject to self-employment tax, as considered earnings from self-employment. Multi-member LLCs are treated as partnerships, with each member paying self-employment taxes on their share of profits.
Your LLC’s income passes through to your personal tax return, usually on a Schedule C, where self-employment taxes are based on that income. This differs from the payroll taxes paid as an employee.