Cliff Beacham CPA | email cliffbeacham@cpa.com | California | Tel: (949) 813-1349
Call Cliff at (949) 813-1349
Limited Liability
Since we are considering taxes here is a list of the various forms under which you could report a business:
Note on LLC:
A
Limited
Liability
Company
(LLC)
is
a
business
structure
allowed
by
state
statute.
Each
state
may
use
different
regulations.
Owners
of
an
LLC
are
called
members.
Most
states
do
not
restrict
ownership,
and
so
members
may
include
individuals, corporations, other LLCs and foreign entities.
There is no maximum number of members.
Most
states
also
permit
“single-member”
LLCs
(SMLLC),
those
having
only
one
owner.
Some
states,
such
as
California, don’t allow for licensed professionals to form professional limited liability companies (PLC)
An
LLC
allows
the
benefits
of
liability
protection
similar
to
a
corporation
and
it
offers
the
option
of
“pass-through”
taxation, like a partnership (Form 1165)
When
an
LLC
has
only
one
owner
it
can
be
considered
to
be
a
“disregarded
entity”
with
profits
and
losses
flowing
directly into the personal tax return (1040) of the owner.
The LLC can also choose (Form 8832) to be treated as a corporation for income tax purposes (Form 1120)
Note:
An LLC is a separate entity for purposes of employment tax and certain excise taxes
This
level
of
flexibility
can
be
very
appealing
to
many
business
owners.
There
is
no
need
to
hold
annual
meetings
or
to
submit
minutes
with
this
type
of
entity.
However,
it
does
need
to
have
bylaws
or
an
operating
agreement
to
avoid losing liability protection
Summary
A
domestic
LLC
with
at
least
two
members
is
classified
as
a
partnership
for
federal
income
tax
purposes
unless
it
files Form 8832 and affirmatively elects to be treated as a corporation
An
LLC
with
only
one
member
is
treated
as
an
entity
disregarded
as
separate
from
its
owner
for
income
tax
purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation
Note on LLP:
The LLP is not a separate entity as far as taxes are concerned. This means that the LLP doesn’t pay separate
income taxes, and profits/losses flow directly into partner’s tax returns. An LLP has to file an annual return (Form
1065) and K-1’s to all partners
Advantage - it’s easy to attract investors, who might become silent partners without dissolving the original
general partnership.
Disadvantage - you still have general partners who have liability for the business. Death of any partner dissolves
the partnership
Note: Franchise Tax
Corporations pay franchise tax if they meet any of the following:
• Incorporated or organized in California
• Qualified or registered to do business in California
• Doing business in California, whether or not incorporated, organized, qualified, or registered
The franchise tax = California net income multiplied by the appropriate tax rate with $800 minimum
Newly Incorporated Corporations
To compute the tax for your corporation’s first tax year, multiply your California net income by the appropriate tax
rate. Your first tax year is not subject to the minimum franchise tax
After the first year, your tax is the larger of your California net income multiplied by the appropriate tax rate or the
minimum franchise tax