S & C Corp + Partnership Business Tax
Tax Prep of S & C Corp + Partnership Tax Returns. Scottsdale CPA firm Howe & Kolodziej CPAs is the Number One Choice in Scottsdale for Complex Business Tax because of the Synergy Between Expert Bookkeeping & S & C Corp + Partnership Tax (480) 596-6499
LLC Tax Return Prep of S & C Corp + Partnership Tax
Contrary to popular belief, there are no Tax Prep advantages (or disadvantages) to forming an LLC. In fact, forming an LLC Partnership, S or C Corp won’t change a thing for federal income Business Tax prep purposes.
Single-Member LLC business tax prep is exactly like the tax prep of a sole proprietorship.
Multiple-Member LLC business tax prep is exactly like the tax prep of a partnership.
Confused? You are not alone. Here is a fairly simplified explanation of LLC business tax prep choices.
You should, however, be aware that forming an LLC Partnership, S or C Corp might subject your business to additional state taxes. Certain states (California for instance) subject LLCs to a “franchise tax” in addition to a typical income tax.
We explain LLC S & C Corp & Partnership business tax prep rules, interaction with personal returns & how to legally make rules work in your favor.
The IRS offers Information on tax prep of LLCs in Publication 3402.
Where Should You Form Your LLC?
You have probably heard that forming your LLC Partnership, S or C Corp entity in states like Delaware, Nevada and Wyoming can offer you various benefits above and beyond what Arizona or your home state can offer you.
While it may be true that these states do have some benefits, you have to consider whether or not those benefits even apply to you.
Whenever a corporation or LLC S or C Corp or LLC Partnership transacts business in a particular state, it must register with that state. This means that it has to pay taxes in that state and file reports just as if it was actually formed there.
If you are operating a “local” business that caters to customers that mainly live in the state you reside in, it makes no sense for you to form your LLC S or C Corp or Partnership in a different state only to then need to register in your home state anyway.
While there are exceptions, in most cases, you might as well just form your entity in the state in which you live and keep things easy on yourself! Why have the extra fees, taxes and paperwork? It makes absolutely no sense!
A good way to determine whether or not you are “transacting business” in your home state is if you lease office space or have employees there. If either of these are the case, then you will most likely be required to register to transact business in your state and it will be much easier if you just form your corporation or LLC there in the first place.
In any case, if you are a resident of Arizona or any other state, your K-1 produced by the LLC is taxable in your resident state. It does not matter whether or not you are doing business in your home state.
So ask yourself, what is the point of forming your LLC in another state? The answer is that....... there is none unless you want to hide the true owners of the LLC.
We have more than one client that formed their LLC in Nevada, Delaware or Wyoming. They still have to file an Arizona LLC tax return.
Here's a list of how each state treats an LLC.
When it comes to LLCs, you must know how your state treats LLCs for state taxation purposes. There are some real tax traps lurking on the state level, especially in California.
Most states tax LLC profits the same way the IRS does: The LLC owners pay taxes to the state on their personal returns, while the LLC itself does not pay a state tax.
However, some states do tax LLC Partnerships based on the amount of income the LLC makes, in addition to the income tax its owners pay.
California levies an 8.84% tax on LLCs that gross more than $250,000 per year. The tax ranges from about $900 to $11,790. The California tax on LLC Partnerships is a tax on Gross income, not net profit!
One of the LLC Partnerships we prepared a California tax return for had about $70K in net losses. The LLC paid about $7K in income tax to the state of California because of the tax on LLC Partnerships gross income.
Annual Fees in Some States
Some states impose annual LLC fees that are not income-related. This may be called a "franchise tax", an "annual registration fee" or a "renewal fee".
In most states, the fee is about $100, but California exacts a hefty $800 "minimum franchise tax" per year from LLCs, including Single Member LLCs.
Arizona does not charge an annual fee for LLCs.
Before forming an LLC, find out whether your state charges a separate LLC tax or fee.
For more information, check the website of your state's secretary of state, department of corporations, or department of revenue or tax. Here's a list of how each state treats an LLC.
California LLC Trap
California’s franchise tax, which is essentially a tax on doing business in California, applies to a S corp, a standard limited liability company (LLC), limited partnerships (LP), and limited liability partnerships (LLP), as well as to traditional corporations (C corp) and a LLC electing to be treated as a corp not subject to corporate income tax.
For a S corp, the franchise tax is 1.5% of the corporation’s net income with a minimum tax of $800.
For a standard LLC, the franchise tax is a flat fee rather than a percentage rate, and the fee varies depending on “total income” (essentially gross income) coming from California. The specific breakdown is as follows:
In addition, there is a minimum franchise tax on LLC S Corps of $800 regardless of income. Limited partnerships and limited liability partnerships are subject only to the minimum $800 franchise tax.
Just in case you haven't noticed, please note that Net Profit or Loss has nothing to do with the taxes you pay in California. Would you still like to form an LLC....of any type.....in California?
Tax Prep of LLC S & C Corp & Partnership Business Tax Returns
Step Up to True, One-on-One, Professional Tax Prep in Scottsdale
Contact Us Scottsdale CPA Firm Howe & Koldziej CPAs LLC Business Tax Service