LLC Tax Law: Capital Gains and Losses

LLC tax law governs taxes on limited liability companies. These are hybrid businesses with characteristics of companies, partnerships and sole partnerships. One of the major benefits of forming LLCs is their more flexible taxing options. While the owners of LLCs still have to pay capital gains taxes, they do not have to pay as much as they otherwise would.

Limited Liability Companies and Taxes

As the name implies, LLCs are formed primarily to protect their owners from liability. If an LLC falls into debt, the banks can't seize its owners' personal assets. Its members can be individuals, partnerships, corporations and even other LLCs. There is no limit on how many (or how few) individuals can be its members. In many cases, an LLC membership is made up of a single person.

Owners of an LLC can choose if they want the LLC to be taxed as a corporation or a partnership. If they choose the former, they will be taxed as both individuals and a corporation. If they choose the latter, they will be taxed only as individuals.

LLCs and Capital Gains Taxes

Capital gains tax is an income tax on gains made from various investments, including LLCs. If LLC owners choose to be taxed as a partnership, they will have to pay taxes for the profits they make from the company. However, they are allowed to use the same exemptions as they would use for other investments, which can lessen the tax burden considerably. If they choose to be taxed as a corporation, they will essentially have to pay the capital gains taxes twice.


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