When it comes to taxes, there are numerous factors that need to be considered. This is especially true for business owners. A limited liability company (LLC) is one of the newest forms of businesses that is actually formed through the state. Because these types of businesses are newer, there are often still questions about how taxes work for LLCs. So let’s discuss a few important things to know about owning an LLC and paying taxes.
LLCs and State Taxes
The main thing to know about paying taxes under an LLC title means that the owner of the LLC reports all of their income and losses on their personal tax returns. This is similar to how a partnership pays taxes, rather than the LLC being taxed separately as a business. Income taxes do vary between single-member LLCs and multi-member LLCs. Single-member LLCs pay taxes through the individual owner while multi-member LLCs are treated as a partnership. Additionally, LLC owners do have to pay estimated payments for taxes and self-employment taxes. All in all, LLC owners pay taxes like other individuals and partnerships. It’s important to have reliable accounting services to ensure the tax rates and payments are all correct for LLCs.
Tax Benefits for an LLC
While there are certainly some tax disadvantages to owning an LLC, just like any other business, there are several great benefits too. Because the tax rate for an LLC is based on the income of the owner, some LLCs may be paying taxes at a lower rate. This is a big tax benefit compared to corporations. This is especially true with New York having a personal income tax rate in 2017 ranging from 4% to 8.82%. Additionally, LLC owners don’t have double taxation — unlike corporations, an LLC owner doesn’t have to pay tax on dividend income on top of net income. And while LLC owners do have to pay self-employment taxes, they usually aren’t subjected to franchise taxes. Local accountants can help LLC owners determine other benefits they may be able to have regarding their taxes.
LLC owners should understand what kind of tax rates and payments they can expect. Working with an accountant can help LLCs get the best tax benefits possible.