| The Limited Liability Company (LLC) is a terrific tax | | | | such as stock or real estate. LLCs that hold |
| entity. The number one reason is its flexibility. | | | | investments are typically best left in their default |
| Specifically, an LLC can be taxed as:a sole | | | | classification. |
| proprietorshipa partnershipa C corporationan S | | | | When should your LLC make the election to be taxed |
| corporation | | | | as a C corporation or an S corporation? |
| An LLC is not a tax entity, it is a legal entity. As such, | | | | Once you have determined your LLC needs to make |
| an LLC can choose how it wants to be taxed. | | | | the election, you then need to consider the rules of |
| Do you know how your LLC is taxed? If your LLC did | | | | when the election can be made: |
| not make an election, then it is taxed as the "default | | | | General rule: The election can take effect up to 75 |
| classification." The default classifications are: | | | | days prior to the date the election is filed and up to 12 |
| If your LLC has one member (owner), then it is | | | | months after the election is filed. |
| disregarded for tax purposes. This means that all the | | | | Example: An LLC files its election to be taxed as a |
| LLC activity is reported by the owner and the LLC | | | | corporation on October 15th. The effective date for |
| files no separate federal tax return. | | | | the tax election can be as early as August 2nd (75 |
| Important note: Some sates require disregarded LLCs | | | | days prior to October 15th) or as late as October 15th |
| to file a state tax return. | | | | of the following year or any date in between. |
| If your LLC has more than one member, then it is | | | | *Special rule* |
| taxed as a partnership and files a partnership tax | | | | For newly formed LLCs, in most cases, the LLC can |
| return. | | | | file the election as late as the original due date of the |
| *Special rule* | | | | first corporate tax return and the election is effective |
| If you and your spouse are the only owners, then you | | | | as of the first day of the LLC. |
| can choose which of the two classifications you want | | | | Example: An LLC is formed on May 1, 2008. The LLC |
| to use. | | | | files its election to be taxed as a corporation by March |
| If your LLC made an election, then your LLC is taxed | | | | 15, 2009 which is the due date of the first corporate |
| as a C Corporation or an S Corporation. | | | | tax return. The effective date of the election can be |
| Do you need to make an election for your LLC to be | | | | as early as May 1, 2008. |
| taxed as a C Corporation or an S Corporation? | | | | Understanding the fundamentals of entities, particularly |
| This election is typically recommended for operating | | | | LLCs, is a key part of building a wildly successful tax |
| businesses that are profitable. This election is typically | | | | strategy. |
| not recommended for LLCs that hold investments, | | | | |