A specialized kind of Limited Liability Company (LLC) created specifically for professional service providers is known as a Professional Limited Liability Company, or PLLC. Lawyers, accountants, architects, engineers, and other licensed professions may be among them. The PLLC form provides the same flexibility and legal protections as an LLC while also offering some benefits to professionals who must adhere to particular licensing and regulatory restrictions.
In contrast to a PLLC, an LLC solely provides liability protection for the individual member’s professional conduct. This means that the other members of the PLLC are not responsible for the activities of the member who is being sued for malpractice or carelessness. The PLLC is a desirable alternative for professionals who want to restrict their personal responsibility while preserving the advantages of a partnership structure because of this feature.
A partnership that provides liability protection for all members is known as a Limited Liability Partnership (LLP). An LLP is not required to hold a specific professional license, in contrast to a PLLC. A 1099 may or may not be required by an LLP depending on the particulars of the partnership. The LLP must submit a 1099 form to the IRS if it has paid an individual or company more than $600 for services delivered. This form is used for tax reporting and to report the recipient’s income.
For taxation reasons, LLCs are regarded as pass-through entities, which means that the business’s gains and losses are distributed to the individual members and reported on their individual income tax returns. The income level of each member affects the federal tax rate for LLCs in 2020. The tax rate is 10% for single members making less than $9,875. The tax rate is 12% for taxable income between $9,876 and $40,125. The tax rate is 22% for taxable income between $40,126 and $85,525. For taxable income beyond $518,400, the individual member’s top tax rate is 37%.
Although LLCs are not compelled to utilize a particular accounting technique, they must select one that fairly depicts their earnings and outlays. The cash basis and accrual basis are the two most used accounting techniques for LLCs. Income and expenses are recorded as they are received or paid in a cash basis accounting system. Income and costs are recorded when they are generated or spent under an accrual basis accounting system, regardless of when they are paid. Additionally, LLCs have the option of using a hybrid accounting system that incorporates aspects of accrual basis accounting with cash basis accounting.
However, some jurisdictions do require LLCs to pay an annual fee or franchise tax. The majority of states do not have a special LLC tax. State-specific taxes and levies are used to pay for various programs and services. In comparison to other states, California and New York have greater fees and taxes for LLCs. LLCs must make sure they are in compliance with all laws by researching the particular ones that apply in their state.
To sum up, a PLLC is a particular kind of LLC made for licensed professionals. A PLLC provides protection for specific member’s professional conduct, whereas an LLP provides liability protection for all members. The particulars of the partnership will determine whether an LLP requires a 1099, and the federal tax rate for LLCs in 2020 will differ based on the income of each member. Some states require LLCs to pay an annual fee or franchise tax, and LLCs may opt to employ a cash basis, accrual basis, or hybrid accounting approach. It is crucial for LLCs to investigate the rules in their state and make sure they abide by all of them.