The corporate structure known as a limited liability company, or LLC, combines the adaptability and simplicity of a partnership with the security of a corporation. In essence, an LLC protects its owners from being held personally liable for the debts and responsibilities of the business while yet enabling them to benefit from pass-through taxation. As a result, rather than on a separate company tax return, the business’s income and losses are declared on the members’ individual tax forms.
1. Single-member LLC – As the name suggests, there is only one owner or member of this kind of LLC. For sole proprietors who want to safeguard their own assets without having to deal with the complexities of a typical corporation, it is a popular option.
3. Series LLC – In some areas, this relatively new sort of LLC is legal. It enables a business to create various “series” or divisions, each with its own assets, liabilities, and members, under a single LLC.
Let’s move on to the questions that are relevant now:
Yes, if an LLC owner works for the business as an employee, they may be paid. But bear in mind that the owner’s compensation must be fair and comparable to what an employee with comparable experience and duties would make. If not, the IRS can view it as a profit distribution that was concealed, which could lead to a tax penalty.
Are owner drawings deductible for tax purposes? Owner distributions, commonly referred to as owner withdrawals, are not tax deductible. As a result, you are not able to claim them on your tax return as a business expense. Owner’s draws are only a means by which LLC owners can take business gains out of the company; these profits are taxed as part of the owner’s personal income. However, bear in mind that if you receive a salary while running an LLC, you can deduct it from your taxes as a business cost.