What is Flow Through Taxation for an LLC?


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Attorney Thomas B. Burton explains how Limited Liability Company members can elect to be taxed as a corporation or a partnership with the IRS and talks about why many small business owners choose to be taxed as a partnership in order to receive flow-through taxation to their personal income tax return.


Transcript of Video: What is Flow-Through Taxation for an LLC?

Today's question what is flow through

taxation for an LLC flow through

taxation means that you would elect to be

taxed as a partnership for your LLC

partnership taxation applies to

partnerships as it implies but you can

also elect to be taxed as a partnership

if you're an LLC this means that each

member of the LLC will receive the

profits or losses of the LLC and a

schedule K-1 and they'll report those

profits or losses on their individual

income tax return they'll be taxed at

individual income tax rates on that

income this differs from corporate

taxation where you elect your LLC to be

taxed as a corporation if your taxed as a

corporation you will be taxed once at

the corporate level and then again if

the corporation distributes money to the

shareholders you would be taxed again at

the dividend tax rate for whatever you

distribute from the corporation talk

carefully with your lawyer about which

form is appropriate for you it depends

on what type of business you're going

into for many small one or two or three

member LLC's they often use flow through

taxation because of the benefits of

having it flow through and not having

corporate taxes at the top level but it

depends on your situation and what kind

of business you're opening there may be

other reasons you want corporate

taxation

for appreciation down the road or other

reasons so talk with your lawyer about

which one's appropriate for you just

know there's two ways to be taxed if

you're an LLC and flow through taxation

definitely applies this is similar to if

you open a sole proprietorship the

profits and losses flow through to you

on your individual tax return

Great question and thanks for asking!

© 2019 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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