Taxes In A Small Business

Small business owners face unique challenges, especially when it comes to taxes. Often supporting the payroll taxes of a handful of employees, the amount of money required to maintain a small business can be quite challenging compared to a larger business. Self-employed individuals, especially those covered under a Limited Liability Company (LLC), may also find it quite expensive in regards to squaring up with the IRS.

Taxes and LLCs

Limited Liability Companies are designed to offer legal protection of self-employed or small business owners by providing a separate entity by which the business makes its transactions. This provides additional protection of the owner and/or operators from liability in the event of a lawsuit or obligations with debt burdens. In other words, a person cannot be pursued personally to satisfy business debts accrued under the LLC.

An LLC is not recognized by the IRS as a classification for tax purposes, but must file a corporation, partnership or sole proprietorship tax return instead. What this means is that the LLC is not automatically classified as a corporation by the IRS and must elect which classification to file their business taxes under. The classification, then, governs the payment structure of taxes for the business. If the LLC is made up of more than one person the business must file a Schedule K-1 form, which breaks down the share of profit and losses per member. In this way, each member of the LLC can specify their stake and claim their share of tax debt or liability fairly.