As a California LLC, you might be wondering how your business manages taxation. As ever, dealing with taxes in the state of California can be a perplexing and time consuming thing to deal with. To help you know roughly where you need to be looking, we recommend that you take a look at how your LLC is going to be taxed first. The differences in how some companies are taxed is very different, and as such you need to find a means of working it all out.
So, how is your California LLC taxed?
The most basic tax laws for an LLC means that your business sees all profits and losses phase through the company. This then goes into the pockets of all the members of the company, good and bad. Therefore, each member reports their profits and losses on their own returns, not through the LLC. It’s like being in a partnership but with up to 100 people involved, and for that reason your LLC management can become a little tougher to manage.
Some state taxes will apply to your company in some circumstances. For example, if you have a large(r) number of members, you might be treated as a partnership instead or a sole proprietorship. Also, some LLCs fall under corporation tax laws by federal law. To classify yourself as an LLC and to be exempt from certain taxes, you need to look to fill in a Form 8832.
For any LLC with just one member, you will be viewed as a sole proprietorship instead. You will then need to report all profits and losses through yourself, not the company. With that, you need to file a 1040 tax return alongside your personal income tax return.
For any LLC with multiple members, though, it can be treated as a partnership unless you elect to take on corporate status. You won’t pay tax, as mentioned above, but you will need to get every owner to put their share of the profit/loss to be taxed.
You’ll also need to file a Form 1065, which all forms of partnership require to be accepted. This helps to make sure that income reporting on all sides is balanced and fair, making sure that there are no problems. This helps to ensure that, with each member filling in a Schedule K1, everything is accounted for.
With this in mind, then, you should find it much easier as a California LLC to make smart and informed financial decisions. However, this only scratches the surface. If you want to make taxation a simple task, you should look to bring in the help of a local CPA.
If you are looking for a CPA in San Diego, contact us 619-269-8190.