What is a Limited Liability Corporation and what are its tax implications?
Friday, November 14th, 2008What is a “Limited Liability Corporation” and what are its tax implications?
An LLC is almost a hybrid between a partnership and a corporation. The partnership part comes from the fact that income is passed through to the members of the LLC, much like an S-Corporation and a partnership. The corporation part relates to liability. LLC members often enjoy similar liability protection to corporate shareholders. In certain states, like California where I practice, state jurisdictions assess fees based on gross receipts. Here in California, the fees can be as high as $11,000 a year. And again, it is based on gross receipts, not net income. So you should be sure to check the rules in the state in which you form your LLC or in the state in which you operate. If you happen to have an LLC that was formed in Delaware, for example, but you own rental property in California, the state of California may likely asses a fee against your gross rents. So you should be sure to check with the state jurisdiction that you either operate in or that you were formed in, because fees are often assessed against gross receipts, not net income. So you could owe money, even if you have a loss.
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