Who pays the income tax in a Limited Liability Company?

Who pays the income tax in a Limited Liability Company?

• A. The LLC pays corporate tax
• B. Each member pays individually on personal tax return
• C. The state pays taxes
• D. Tax is deferred

Answer: (B)

Tax treatment of an LLC is typically pass-through, so profits flow to members and are taxed on their personal returns. Because of this, the members report their share of the LLC’s income on their own tax forms and pay tax at their individual rates, rather than the LLC paying income tax itself. An LLC can choose to be taxed as a corporation, in which case the entity would owe corporate tax and distributions to members could be taxed again, but that is a specific election. The state does not pay the LLC's income tax, and tax is not automatically deferred; there may be state fees or minimum taxes in some places, but these are separate from income tax.

Tax treatment of an LLC is typically pass-through, so profits flow to members and are taxed on their personal returns. Because of this, the members report their share of the LLC’s income on their own tax forms and pay tax at their individual rates, rather than the LLC paying income tax itself. An LLC can choose to be taxed as a corporation, in which case the entity would owe corporate tax and distributions to members could be taxed again, but that is a specific election. The state does not pay the LLC's income tax, and tax is not automatically deferred; there may be state fees or minimum taxes in some places, but these are separate from income tax.