A limited Liability Company involves structures where the owners of the company are not held liable for the debts or even the different liabilities that befall the company. In limited liability companies, there is a combination of corporation features in line with the distinct characteristics of either partnership or even the sole proprietorship. The advantage is that LLC protects members from liabilities. The disadvantage is LLC are costly to operate when compared to a sole proprietorship.
A single member of the LLC company is taxed using the mechanisms of a sole proprietorship. In this case, the LLC and the business owner are treated as different persons. On the other hand, LLC that has more than one member in the registration process will have the income taxes paid as a partnership organization (Dyrda, 2019). The partnership will not pay any of the fees, but it is the individual who will pay the taxes. Individual tax payment with regards to thee amount of shares that these individuals hold in the partnership (Dyrda, 2019). The partnership will file a document called information returns, which is in line with the requirements in form 1065. In personal tax where there is one member, the individual will fill in form 1040.
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The three different mechanisms that an LLC can file tax returns include when the LLC is treated as a corporation. The organization will fill form 8832. The second method is filling returns as a multi-owner organization, and this occurs when there are more co-founders to the organization (Fézer, 2019). In the first step, the LLC will fill in form 1065, which allows the IRS to understand what features should be included in the filling process (Fézer, 2019). The LLC also prepares the schedule K-1 form. Lastly, an LLC can file taxes as a solo entrepreneur, where the founder is only one member of the organization. Allocated profits and losses will pass through the individual who is later treated as an owner of the organization.
References
Dyrda, S. (2019). Discussion of “Taxation and The Life Cycle of Firms” by Erosa and González. Journal of Monetary Economics .
Fézer, T. (2019). Corporate Governance and the Internal Structure of Companies-Questions of liability. INDIANA JOURNAL OF GLOBAL LEGAL STUDIES .
