Small Business Tax Questions: What Income Tax Return Should You File For Your LLC?

Do you own a limited liability company (LLC) and are wondering what form to use to file your business income tax return? This article will answer that question.

First, here’s the short answer. Usually, an LLC files its annual federal income tax return on one of the following forms: Schedule C (as part of your Form 1040) or Form 1065 or Form 1120 or Form 1120S.

Perhaps you were hoping for a simpler answer? That’s understandable. But please realize that an LLC can be taxed like several different entities, depending on several factors. So let’s get more specific.

If the LLC has only one owner, it is known as a “single-member LLC”. A single-member LLC can be taxed as a sole proprietorship or a corporation. The LLC must choose to be taxed as a corporation by filing the appropriate paperwork with the IRS. If the LLC chooses to be taxed as a C Corporation, it files Form 1120.  If it chooses to be taxed as an S Corporation, it files Form 1120S.  If it does nothing, and does not choose to be taxed as either a C Corporation or an S Corporation, then by default the LLC is taxed like a sole proprietorship and files Schedule C.

If the LLC has two or more owners, it is known as a “multi-member LLC”. A multi-member LLC can be taxed as a partnership or a corporation. And similar to the single-member LLC, it can choose to be taxed as a C Corporation (and therefore file Form 1120) or as an S Corporation (and therefore file Form 1120S). If the multi-member LLC does nothing, then by default it is taxed as a partnership and files Form 1065.

The above information often comes as a complete surprise to new LLC owners. Many don’t have a clue regarding the simple fact that a LLC does not have it’s own LLC-specific tax form. Instead, the LLC files the tax return of whatever entity it has chosen for itself for tax purposes. When it comes to tax reporting, the LLC is like a chameleon and it takes on the “tax color” of the sole proprietorship, partnership, C Corporation or S Corporation.

One final comment: perhaps you are wondering how the LLC notifies the IRS of its intention to be taxed as a corporation. Use Form 8832 to choose C Corporation tax status; use Form 2553 to choose S Corporation tax status. Each of these forms has special rules and deadlines, so be sure to consult with a tax professional to ensure proper filing.

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