Preparing the taxes for any company is a daunting tax and should be handled by a licensed and certified professional. LLC tax preparation can be very confusing, especially if it is owned by more than one person. The more people that are involved, the more confusing some of the paper work can become. There are several things that should be kept in mind when these taxes are prepared.
First, a LLC does not pay federal income tax. Each of the members of the LLC pay federal income tax on their individual share of the profits of that company. How they file those taxes however will be determined by whether it is a sole owner LLC or a multi owner LLC.
In a sole owner LLC the LLC tax preparation will start with the owner’s Form 1040. In addition to this form a schedule C will have to be submitted with this tax return which will show the amount of all profits and losses for the year whether the profits are used or remain as part of the business. For instance, if the money were to stay in the LLC account for expenses in the coming year, it would still have to be reported and taxed accordingly.
In a multi owner LLC, the LLC tax preparation is slightly different. For instance, each member pays taxes on a portion of the income. This portion is called their distributive share and is in direct proportion to the amount they have invested in the company. For instance if you have invested fifty percent, you get fifty percent of the shares. This amount, no matter how much it might be is taxed and must be reported even if the money is not actually distributed to you for any reason. For example, if the profits were not enough to give everyone their share so the money was left in the LLC account to help the business continue to grow that is still a taxable amount.
There are other forms that are used in LLC tax preparation, some just for reporting purposes and others for taxes, deductions and future payment amounts. It is important that the right amount of taxes be paid so that there is no need for an audit or assessments levied against the company, especially a new one that may not be able to handle this additional and unexpected expense.
Because LLC tax preparation is both so important and so confusing it is very necessary to hire a CPA that not only knows the tax code but knows the laws that pertain to LLC s and other business entities as well. It is doubly important to find the right person in this regard when this is your life’s work and you do not want to see your business fail because of an improperly filed form.