What is Flow Through Taxation for a Limited Liability Company (LLC)

Attorney Thomas B. Burton explains how "Flow Through" taxation works for an LLC that elects to be taxed as a partnership and discusses why flow through taxation can avoid the "double taxation" potential of a C corporation.

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Transcript of Video: What is Flow Through Taxation for a Limited Liability Company (LLC)?

Today's topic what is flow through

taxation with an LLC and why might I

want it flow through taxation is the

concept that all income and expenses

from an LLC can flow through to you on

your personal tax return if you form an

LLC and you elect partnership taxation

this means you will be treated as a

pass-through entity therefore just like

a sole proprietorship all the income and

expenses of your business will flow

through to a Schedule C that you file

on your own personal tax return that's

for a situation where you're the sole

member of the LLC now let's contrast

that with a C Corp which is not flow

through taxation and this is where you

sometimes hear about double taxation a C

Corp pays taxes at the corporate level

then the owners of the C Corp take

dividends from the corporation they get

taxed on those dividends again at the

individual level that's why it's

referred to as double taxation so if

you're a very small business one or two

owners you often don't need that two layers

of taxation there are certain instances

where you might want to be a C Corp such

as a technology company seeking angel

financing or seed investment other

specific situations where you plan to go

public if that's your situation make

sure you talk about what you want to

accomplish with your lawyer but for the

vast majority of small businesses that

plan to remain a small business one or

two owners flow through taxation

especially when they're getting going makes a

lot of sense

and again flow through taxation is the

concept that the income and expenses

from your business inside of your LLC

flow through to you on your personal

income tax return and that in a nutshell

is flow through taxation for an LLC

great question and thanks for asking

© 2018 Law Office of Thomas B. Burton. All Rights Reserved.

Transcript and captions provided for ease of access for the hearing impaired.

For questions about this topic, or to suggest a topic for a future blog post, please contact my office.

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