June 29, 2015
LLC Tax Filing and in particular the LLC Tax Return Chicago Illinois are two of the most challenging issues we face as Small Business Tax Accountants. Why? Because it is very easy to do them incorrectly. This is one of the reasons why they are audited so extensively.
But there are certain common mistakes which can be avoided. Here they are, in no particular order…
1 – Use the Correct Return
If you are a single member LLC treated as an LLC, your income and expenses are filed on Schedule C of Form 1040. If you are a multiple member LLC treated as an LLC, then use form 1065.
2 – LLC with S-Status
If you are an LLC that has elected an S-Status, then use form 1120S whether you are a single or multiple member entity.
3 – Report your active compensation correctly
If you actively work at the entity, then you are due reasonable compensation for that work. How that compensation is reported has everything to do with the form being used.
Single Member Schedule C
If you are reporting on a Schedule C, then it should be treated as a Sole Proprietor’s Draw. Those draws are subject to both income and payroll taxes.
Multiple Member 1065
Active compensation to partners on Form 1065 is called a Guaranteed Payment. It is a straight deduction off of the front of the Partnership Return and picked up as income to the partners via the K-1. This income is also subject to both income and payroll taxes.
LLC with S-Status
Reasonable compensation to owners of S-Corporation (or those treated as such), pick up their reasonable salaries on a W-2. Any excess compensation can be treated as a Shareholder Distribution given the income and retained earnings of the company. These Distributions are only subject to income taxes.
There are many other issues in LLC Tax Filing – LLC Tax Return Chicago Illinois . As you can probably tell, it is very complicated and getting worse with each tax season. If you have concerns in this regard, please don’t hesitate to contact us. I love to hear from my readers, and can be reached at 773-267-7500 or
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