An LLC c
an be taxed similar to an S corporation. If you are wondering, why you would even want this type of tax treament? Read on and I'll explain.Owners or members, as they are usually called, of an LLC have the choice to elect how the LLC will be treated for tax purposes. This is a fairly new option allowed by the tax regualtions. In the past, the Internal Revenue Service (IRS) classified business entities as either partnerships or corporations based on four different factors.The four factors included: (1) Limited liability; (2) Centralized management; (3) Continuity of life; and (4) Free transferability of interest. A business entity would be taxed as a partnership if it possessed two of the four characteristics. It would likely be taxed as a corporaiton if it possessed three of the four characteristics. This led to a lot of confusion and uncertainty for business owners.Then in 1997, new IRS regulations came into effect which allowed business entities like LLCs to elect the tax treatment they desired. These regulations became known as the "check-the-box" regulations. They can be found in Income Tax Regulations 301.7701-1 through 301.7701-3. The form for making the election is IRS Form 8832 and details about the election process are set forth in the instructions to Form 8832.The regulations give business entities like the LLC several different options. They can operate as an LLC but still enjoy the beneficial characteristics of a corporation while being taxed similar to a partnership. In the alternative, the regulations allow an LLC to elect corporation tax status and then make the S corporation election.In a nutshell, partnership taxation is a form of pass through taxation where the the income and deductions "flow through" the entity and are reported and paid by the individual partners. Most LLCs and S corporations are taxed this way. On the other hand, if an entity is considered a corporation, it will have to pay income taxes on its net profits and then when those proceeds are paid to the shareholders in the form of dividends, they will have to pay tax again at their personal level. This is called the "double tax" of
an be taxed similar to an S corporation. If you are wondering, why you would even want this type of tax treament? Read on and I'll explain.Owners or members, as they are usually called, of an LLC have the choice to elect how the LLC will be treated for tax purposes. This is a fairly new option allowed by the tax regualtions. In the past, the Internal Revenue Service (IRS) classified business entities as either partnerships or corporations based on four different factors.The four factors included: (1) Limited liability; (2) Centralized management; (3) Continuity of life; and (4) Free transferability of interest. A business entity would be taxed as a partnership if it possessed two of the four characteristics. It would likely be taxed as a corporaiton if it possessed three of the four characteristics. This led to a lot of confusion and uncertainty for business owners.Then in 1997, new IRS regulations came into effect which allowed business entities like LLCs to elect the tax treatment they desired. These regulations became known as the "check-the-box" regulations. They can be found in Income Tax Regulations 301.7701-1 through 301.7701-3. The form for making the election is IRS Form 8832 and details about the election process are set forth in the instructions to Form 8832.The regulations give business entities like the LLC several different options. They can operate as an LLC but still enjoy the beneficial characteristics of a corporation while being taxed similar to a partnership. In the alternative, the regulations allow an LLC to elect corporation tax status and then make the S corporation election.In a nutshell, partnership taxation is a form of pass through taxation where the the income and deductions "flow through" the entity and are reported and paid by the individual partners. Most LLCs and S corporations are taxed this way. On the other hand, if an entity is considered a corporation, it will have to pay income taxes on its net profits and then when those proceeds are paid to the shareholders in the form of dividends, they will have to pay tax again at their personal level. This is called the "double tax" of 
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