What to know about limited liability companies for tax purposes

What to know about limited liability companies for tax purposes

On Behalf of | Aug 7, 2020 | Business & Corporate Law |

Becoming an entrepreneur in North Carolina is an exciting endeavor. Some of the payoffs are the opportunity to be the boss and get an idea off the ground. This endeavor comes with red tape too. While a business owner does not have to be well-versed in all things business law, having some knowledge is a good idea. Otherwise, a competent legal professional is a must. When a company is started, for example, its business structure needs to be established. One option is the limited liability company, or LLC.

For tax purposes, the IRS allows any entity to form an LLC, including individuals, corporations and other LLCs as well as foreign entities. The only catch is the exact parameters for the corresponding state must be double-checked first. Then each entity becomes a member of the LLC. There are no limits on the number of members per LLC. Banks and insurance companies cannot be LLCs, however, simply because they are governed by their own set of rules and regulations.

Members decide how they want The IRS classifies LLCs as a partnership, corporation or part of the owner’s tax return. Single-member LLCs are possible. If there are at least two members in the LLC, it will be considered a partnership unless Form 8832 is filed. So correctly filing Form 8832 becomes important. Otherwise, the IRS sets up the default classification.

Business law gets tricky because there are so many layers. Every year tends to bring on more rules and regulations. Thus, entrepreneurs are encouraged to work with legal professionals who specialize in this realm. This is one way to stay abreast of changes that may affect a company, especially when it comes to tax purposes. Legal professionals stay on top of these changes and pass on the information as necessary to their clients.