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What is Limited Liability Company Taxation?

Limited liability company taxation is similar to that of partnerships or sole proprietorships, that is they have "pass-through" status. With limited liability company taxation the LLC itself pays no tax, but instead the owners of the LLC pay taxes on their share of the profits profits (or deducts their share of business losses) on their personal tax return.

In contrast to limited liability company taxation, C corporations are separately taxable entities. Therefore, the corporation must pay taxes on its income and individuals must pay taxes on the dividends they receive from the corporation. This can lead to double taxation on dividends that are paid out of corporate profits to the owners.

Limited liability company taxation is one of the most appealing reasons to form an LLC.


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