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There are certain LLC tax benefits for the company who chooses to form as an LLC when starting up.
Pass-Through Taxation
Taxation is simplified. There is no company return to file in most cases. With a multi-owner LLC a form 1065 must be filed for informational purposes. If the company elects to be taxed as a corporation then things can become a bit more complicated.
No Proportionality Requirement
With a corporation, the profits or losses are directly proportional to the ownership interest in the company. However one of the LLC tax benefits available is that the LLC may distribute profits that are not proportionate to ownership interests.
Other Benefits
Other LLC tax benefits are present in this form of business as well. These include:
Pass-Through Taxation
Taxation is simplified. There is no company return to file in most cases. With a multi-owner LLC a form 1065 must be filed for informational purposes. If the company elects to be taxed as a corporation then things can become a bit more complicated.
No Proportionality Requirement
With a corporation, the profits or losses are directly proportional to the ownership interest in the company. However one of the LLC tax benefits available is that the LLC may distribute profits that are not proportionate to ownership interests.
Other Benefits
Other LLC tax benefits are present in this form of business as well. These include:
- Inclusion of company debt – An interesting, but not well known benefit is that members may include company debt in the tax basis of the percentage of their ownership.
- Ability to Step Up the Tax Basis – Another LLC tax benefit is the fact that you can step up the tax basis when the transfer of ownership is completed. This can have a huge impact on taxation.
