LLC Tax Prep FAQ

September 4, 2020

Both sole proprietors and business owners can opt to become LLCs, or limited liability companies. Here, review answers to common questions about LLC tax preparation to take the guesswork out of the process. Your Los Angeles accounting firm is here to provide professional tax prep assistance if you need it. 

What Business Records Do I Need to File?

To file correctly and therefore sidestep an audit, you need to gather numerous pieces of financial information about your LLC. They include capital account balances, or the amount of money and the number of services and properties each member of the LLC has contributed. Other documents include gross receipts, profit and loss allocations, and a list of expenses including internet, phone, business insurance, travel, rent, office supply, wage, and professional costs. Documents detailing the cost of what you sell, if applicable, are also necessary, as are those concerning business account interest. 

If I’m a Single-Member LLC, How Do I Pay Taxes? 

Your LLC is not considered a separate entity by the IRS, rather it is viewed as a “disregarded” entity. Therefore, paying taxes as a single-member LLC is not that different from paying taxes as a sole proprietor. It requires calculating net income using the Schedule C form and providing information about your expenses for deduction purposes. 

How Do Multiple-Member LLCs Pay Taxes? 

Filing income taxes as a multi-member LLC requires a little more work. The partnership files Form 1065 to provide the IRS with an information return, or information about each partner’s income and deductions. The form also details any changes to member capital during the tax year.

Additional multiple-member LLC tax requirements include documenting each partner’s share of profit and loss, and separating income into different types or groups. Such income gets listed on Schedule E–Supplemental Income. 

Do I Pay Self-Employment Tax As An LLC Owner? 

Since your income comes from business services whether you are the only member of the LLC or not, you must pay self-employment tax. Schedule SE provides instructions for calculating what you owe. The amount is based on your net income, not your gross income, and gets added to any other income you earned during the tax year on your individual tax return. 

For tax preparation services, speak with the Encino tax consultants at Wallace & Associates.