LLC C Corp Form 1120 Business Tax
LLC C Corp Form 1120 Business Tax Prep. Scottsdale CPAs Renee Kolodziej & James Howe have over 30 Years of C Corp Form 1120 Business Tax Prep & Bookkeeping Experience (480) 596-6499
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Form 1120 LLC C Corp Business Tax
For federal income tax purposes, corporations are governed by the Internal Revenue Code & there are different types of corporate structures to consider. The basic type of American corporation is governed under Subchapter C of the Internal Revenue Code, so they are called C corporations.
S corporations start out as a C Corp but make a special tax election to become an S Corp, to have income, deductions, etc. taxed directly to shareholders (S corporations are governed by Subchapter S).
A C Corp classified as a Limited Liability Company is the same as a regular C Corp. It is a legal structure that businesses can choose to organize themselves under in order to limit the owners' legal & financial liabilities. A C Corp is legally considered a separate entity from its owners.
C Corporation net income is taxed at the corporate level & is taxed again when it is distributed to owners as dividends. These distributions aren’t deductible to the C Corp on the corporate return & are paid from after-tax earnings.
A C Corp is a taxable entity that does not pass anything through to the shareholders. A C Corp pays income tax on its net profit. While the double taxation of C corporations is a drawback, the ability to reinvest profits in the company at a lower corporate tax rate is an advantage. Most corporations are C corporations.
How To Elect LLC C Corp Status
If you decide that C Corp tax treatment is beneficial, you can make an election for C Corp tax treatment by filing Form 8832 with the IRS. Form 8832 requires either unanimous consent of all LLC members or the consent of an LLC officer or manager with proper authority.
When making the election, keep in mind that the earliest date you can begin as a C Corp for tax purposes is 75 days before the date Form 8832 is filed. Once the election is made, the LLC is subject to corporate taxation for a minimum of five years before it can make a new election.
C Corp Business Tax Basics
A C Corp files annual tax returns on Form 1120. Since a C Corp is a taxable entity, taxable income of the LLC is calculated without without regard to members or their respective ownership interests. The taxable C Corp income is subject to corporate income tax rates, which in some years can be as high as 38 percent. President Trump lowered the C-Corp tax rate to a flat 21%. If your personal tax rate is higher than 21%, then a C-Corp may save you a substantial amount of tax.
C Corporation Tax Return Due Dates
One other change relevant to C Corp taxation is that the return & tax payment is due on the 15th day of the fourth month following the close of the LLC’s tax year, which is commonly April 15th since many businesses use the calendar year for tax purposes. The April 15th due date is not the same for S Corps, which is now March 15th.
LLC Partnerships are now due on March 15h. Single Member LLCs are due on April 15th.
Corporations will be allowed a six-month extension, except that calendar-year corporations would get a five-month extension until 2026 and corporations with a June 30 year end would get a seven-month extension until 2026.
The new due dates will apply to returns for tax years beginning after Dec. 31, 2015. However, for C corps with fiscal years ending on June 30, the new due dates will not apply until tax years beginning after Dec. 31, 2025.
Businesses That Choose to be a C Corporation
Among the different types of business structures available in the U.S., almost all larger corporations with more than 100 shareholders and virtually all publicly traded companies are C corps. All companies that are considering going public, seeking venture capital, or taking on equity investors are also usually C corps. That doesn't mean, however, that a small business or a sole proprietor is barred from becoming a C corp. The IRS offers Information on the Taxation of LLCs in Publication 3402.
LLC Tax Traps
California’s franchise tax, which is essentially a tax on doing business in California, applies to S corporations, standard limited liability companies (LLCs), limited partnerships (LPs), and limited liability partnerships (LLPs), as well as to traditional corporations (C corporations) & LLCs electing to be treated as corporations that are not subject to corporate income tax.
For S corporations, the franchise tax is 1.5% of the corporation’s net income with a minimum tax of $800. For standard LLCs, the franchise tax is a flat fee rather than a percentage rate, & the fee varies depending on “total income” (essentially gross income) coming from California.
The specific breakdown is as follows:
In Arizona, you would pay $50 minimum tax on the S-Corp LLC level. You would pay tax on your personal return based on your share of net income from the S-Corp LLC which you would also pay on your California personal tax return.
In addition, as with S corporations, there is a minimum franchise tax on LLCs of $800 regardless of income. Limited partnerships & limited liability partnerships are subject only to the minimum $800 franchise tax.
Traditional corporations and LLCs electing to be treated as corporations are subject to a state income tax of 8.84% of net income derived from business transacted in California. The corporations and LLCs that are subject to the corporate income tax are not subject to the franchise tax.
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