Tax Treatment of the LLC

All income of the LLC is passed directly through to the personal returns of the members. When property is transferred to the LLC or distributed from it, there are no separate tax consequences. Except in unusual circumstances, the general rule will apply, and no gain or loss will be recognized on a contribution to or distribution from the company. There is no tax when funds are withdrawn from the company. The only tax paid is on the income earned, which is reported on the owner’s personal tax return. This system avoids the complications and potential double taxation that plagues the corporate format. If an LLC has a single member, it can elect to be disregarded for tax purposes and the items of income and loss appear directly on the Schedule C without the filing of a federal tax return. Alternatively an LLC can elect to be taxed as a corporation. This may be useful in certain unique situations but probably not for the average investor or business owner.


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