Fake or Real: My company is taxed as an LLC
Fake or Real:
My company is taxed as an LLC
There is no such thing as being taxed as an LLC.
Clients, as well as tax and legal professionals, routinely confuse entity structure with tax classification. Quite commonly we hear clients state an entity is taxed as an LLC when, in fact, no such tax classification exists.
Many people do not realize that when forming an entity, typically there are two principle filings. Understanding the difference can alleviate a lot of confusion
1. The first filing is at the state level, which incorporates the company as a legal entity (i.e., filing as a Limited Liability Company).
2. The second filing (or filings) is with the Internal Revenue Service to obtain an Employer Identification number. This filing determines how the new entity will be treated from a federal tax perspective.
A LLC is purely a state-level entity structure. In turn, the LLC elects how it will be taxed: either as a partnership, a S corporation, a C corporation, or a disregarded entity. Generally, when someone says they are taxed as an LLC, what they really mean is that they are taxed as a partnership.
If you have any questions on tax elections or would like to know more about corporate structure generally, please schedule a consult at firstname.lastname@example.org or 214-291-3200.