20 May Florida LLC, Types and Taxes
I just returned from a short vacation in wonderful Las Vegas. I really love playing craps! In keeping with my guest bloggers, Jenifer Schembri, estate planning attorney with Blalock Walters located in Bradenton and Sarasota, Florida wrote a quick summary of evaluating a Florida LLC.. I suggest you contact a tax advisor to research which type of entity your company should chose. Thank you to Jenifer for her time and expertise.
Forming an LLC in Florida is as simple as going to the website of the Florida Secretary of State and applying for a new LLC. Once your LLC is registered you will then need to decide how to manage your LLC from a tax perspective, which is more complex that most realize. An LLC, depending upon the number of owners, can either be taxed as: (i) a disregarded entity; (ii) a subchapter S corporation; (iii) a partnership; or (iv) a corporation.
A single member LLC can either be taxed as a disregarded entity, a C corporation, or a subchapter S corporation. The default under the IRS regulations is for the single member LLC to be classified as a disregarded entity unless the LLC makes an election with the IRS.
An entity (LLC) with multiple members can either be taxed as a partnership, a C corporation, or a subchapter S corporation. The default is a partnership unless the LLC makes an election with the IRS.
Each tax status has its advantages and disadvantages:
- As a disregarded entity, the LLC will not file a separate income tax return and will be reported on the owners 1040 as a Schedule C business, however all of the income from the business will be subject to self employment taxes;
- A subchapter r S corporation requires a separate tax return, however a portion of the earnings may be distributed as dividends and therefore not subject to self employment taxes. However distributions from a subchapter S corporation must be prorata according to stock ownership; and
- A partnership also requires a separate tax return and the owners’ distributions may be subject to self employment taxes; however distributions among multiple members may be disproportionate to their ownership in the LLC if documented properly.
In order to ensure that the right entity classification is selected for a new venture, LLC owners should consult tax counsel.
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