I get a lot of calls from business owners who set up an LLC for their business. Why an LLC? Perhaps they read about it online or an attorney recommended an LLC. For income tax purposes, an LLC is generally not a good choice. An LLC does not offer you any income tax benefits at all. In fact, in many States, LLC’s have extra taxes which apply.
Anyway, if you have already set up an LLC and you own 100% of that LLC (or you own it with your spouse) then for Federal income tax purposes, no additional tax filing is required.
The IRS deems these LLC’s to be “disregarded entities” so your income and expenses from the LLC will be included in either Schedule C or Schedule E of your personal tax return. For State income tax purposes, a separate filing may be required so please be sure you understand your specific State filing requirement as every state has different rules as regards tax responsibilities for LLC’s.
Once you have filed your 2021 tax return, I recommend you connect with your tax preparer and understand why an LLC is not the best tax choice and discuss converting that LLC to a corporation for income tax purposes. There are several pros and cons to this and it is critical you understand your choices. The mechanics of the conversion are relatively simple and require a document be filed with the IRS to request this conversion.
Interested in learning more about the differences between LLCs and Corporations? There is a great summary worksheet on my website for download at www.wendybarlin.com