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Old 01-27-2007, 01:52 AM
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How are LLC' s taxed?

Great improvements on the Site! Good work Tax Guru et al!

For your information, I am considering registering an LLC in New Jersey.

How are LLC' s taxed? How would my LLC be taxed if it makes a profit of about $50,000?



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Old 02-19-2007, 11:56 PM
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LLC's do not as such pay federal income taxes, however there is a minimum franchise or state tax filing fee that is due at time of filing. The state filing fee's vary according to the individual states.

For example in New Jersey, the LLC's pay the greater of a minimum of $300 or the greater of $150 per partner.

For California, the LLC's pay a minimum filing fee of a flat $800!

The distributive share of profits or losses is reported on the individual partners K-1 and this income is reported on that partners individual tax return.

For actively participating LLC's partners and managers, this is income is subject to self-employment tax along with the regular tax rate for that the individual partner.

For non-active LLC partners this share of distributive profit is not subject to self-employment tax, however, this is subject to the regular tax rate for the individual shareholder.

To answer your question regarding the $50,000 profit of the LLC, it follows that the LLC at the federal level would not be subject to any Federal taxes. But, the tax liability would be generated on each individual shareholders pro-rata share of profit based on their respective tax rates and additional self-employment taxes would be assessed depending on whether individual shareholder has actively participated in the LLC.

On the State tax return, this profit would not be subject to taxes, rather a minimum franchise tax would be due as discussed above. Once again, this amount is based on your State's minimum filing fee or fee based on each partner in the LLC.

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Last edited by TaxGuru : 02-20-2007 at 12:01 AM.


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