Limited Liability Companies For Dummies, 3rd Edition

Chapter 8

Tell Uncle Sam How It Is! Choosing How You Want to Be Taxed

IN THIS CHAPTER

Knowing which tax classification is right for you

Watching out for tax traps

Electing a tax designation with the IRS

In 1997, the United States Treasury established the current entity classification laws (which you may hear referred to as the check-the-box regulations because the corresponding IRS form is comprised of a series of check boxes). This profound move established LLCs as one of the few entity types whose owners can dictate to the IRS how they want their company to be treated for tax purposes. LLCs can be taxed in four main ways — partnership taxation, disregarded entity taxation (if you’re a single-member LLC), corporation taxation, and S corporation taxation — and in this chapter I discuss them at length.

The chosen taxation has no bearing on the actual integrity and structure of the LLC; for instance, an LLC that elects to be taxed as a corporation is still considered an LLC by state law in every sense of the word. The key benefits of an LLC — dual liability protection, flexible management and ownership, and so on — are all still in full effect. The LLC simply pays taxes like a corporation ...