A limited liability company business structure, otherwise known by its acronym LLC, operates unlike other legal structures. This type of organization can be seen as a hybrid as it is both a corporation and works as a partnership.
Compared to others, an LLC business can be seen as more flexible in nature, and tax season is dealt with entirely differently.
Every single company must file their taxes, and this practice includes a mixture of becoming more organized, using the proper accounting software programs, filling out the necessary forms and much more. However, you will not be filing traditional ‘corporate taxes’ in this instance.
Still, your accounting team can file for various tax deductions, and this means that you need to be organizing your company’s finances along the way, leading into tax season. Did you get any business loans? Regardless of the type and considering that there are interest-only business loans, this is something that you can account for.
The tax regulations and requirements will require the company owners to file individual tax returns for an LLC-structured organization unless you specifically choose to be taxed differently. More details on exactly what this means will be outlined below.
Understanding the LLC business structure
The very first step is always to be highly aware of your company structure and what this means, which in this case, is LLC. A limited liability company operates differently to others on the market, and this means that taxes are submitted differently.
One of the best ways to describe an LLC is that it is a mixture of a sole proprietorship and a corporation.
Filling out forms that are specific to your company’s structure
It is incredibly important you fill out forms that are specific to your company structure. If you don’t need to pay traditional corporate taxes, why would you file documents that are related to that specific structure?
However, regardless of the business type, you still have an opportunity to account for tax deductions. This is furthermore the reason why you should hire financial experts that can help you determine what these areas and instances are.
How much money has your business spent on supplies, for instance? What about acquiring loans to fund specific endeavors? Even understanding your interest rates on business loans can help you gain the most amount of money back as a tax deductible.
Filing personal income taxes
The International Revenue Service explains how the LLC files their taxes in that:
If the LLC is a partnership, normal partnership tax rules will apply to the LLC and it should file a Form 1065, U.S Return of Partnership Income (source
Quite simply, it means that company owners and partners will file taxes as personal tax returns.
This can be beneficial to the alternative, as it means that additional earnings are not necessarily taxed, plus there isn’t a distinction made between corporate and personal income taxes. The various company funds you have accumulated, whether it was equipment financing, commercial loans, or in another area, can all be filed outside of the traditional corporation tax regulations.
Filing Corporations taxes
An LLC organization is also flexible in that it can also choose to be taxed as a corporation! It means that your business will be taxed as a separate entity. If the company wants to maintain its profits within the business, this can be beneficial to do. Not to mention, the members of the business can save on their individual taxes.
The downfall of filing LLC taxes under personal income is that it can be seen as a self-employment tax, which could incur higher costs to that particular person. Plus, imagine if your company goes into massive amounts of debt: you would personally be responsible for that under the taxes that you file, and it can affect your life much more rather than treating it as a separate entity taxation.
Dependant on the State
Remember that the specific state that you are located in can also slightly affect the way that you are taxed.
There are individual states where businesses have to pay higher taxes than others, and this can further help you determine how you want your LLC business to be taxed. For instance, Vermont, Oregon, Rhode Island, Minnesota, and Maryland are a few examples of states where the taxes that must be paid are higher. On the flip side, Alaska, South Dakota, and Wyoming have among the lowest tax costs.
Be mindful of deadlines
To stay ahead of tax season, be mindful of the specific deadline in April that you have to submit the necessary files and documents by.
April 15th, 2019
You don’t want to cause any unnecessary stress in your life and that of your employees, as a result of leaving it to the last minute.
Instead, you should opt to have everything organized in advance. You could even make use of specific accounting software programs that will help you ensure the data is organized properly and efficiently.
Consequences that follow neglecting taxes
Neglecting to pay your taxes on time will incur penalties and other consequences. Why would you subject your business to losing money, when the goal is always to gain profit? Although you can file for an extension to submit your company or individual taxes, this isn’t something that you can leave to the last minute, either.
The structure of your business determines your tax regulations and requirements. It has been clearly outlined that an LLC business is flexible in that it can be taxed under either sole-proprietorship rules and regulations or corporation, depending on what you feel will benefit you more.
It boils down to a simple question: what do you prefer?
The amount of money that your business gains or has lost could be a good way to determine which taxing method you would prefer. A financial expert or your company’s accounting department are the individuals you should always turn to for this advice. They are the ones who can organize your company’s finances and determine what the best course of action is.
After all, your interest rates business loans and the amount of money you have spent on various business ventures will all impact you during tax season.