Limited Liability Companies. A multi-member Limited Liability Company electing to be taxed as a partnership reports its income on IRS Form 1065, U.S. Return of Partnership Income. Each owner shows their share of partnership income, credits, and deductions on Schedule K-1 (Form 1065). A multi-member Limited Liability Company electing to be taxed as a C corporation reports its income on Form 1120, U.S. Corporation Income Tax Return. A multi-member Limited Liability Company electing to be taxed as an S corporation files Form 1120, U.S. Corporation Income Tax Return. Each owner shows their share of corporate income, credits, and deductions on Schedule K-1 (Form 1120S). A single member Limited Liability Company electing to be taxed as a disregarded entity does not file a return and its owner reports all income on Form 1040 and appropriate schedules. Tax Rates The rate of tax paid on income from the business activity depends on how the business is organized. Income from a sole proprietorship, S corporation, partnership, or Limited Liability Company is taxed to the owner at federal and state individual rates. A C corporation’s income is taxed to the corporation at the federal and state corporate rates. Federal Corporate Income Tax rates. Corporations, including qualified personal service corporations and members of a controlled group, are taxed at a flat rate of 21 percent of taxable income. The Inflation Reduction Act of 2022 imposed a minimum tax of 15 percent. Federal Individual Income Tax Rates. The federal individual tax rate applicable to pass through income for owners of sole proprietorships, S corporations, and Limited Liability Companies taxed as pass through entities depends on income. The tax rates for 2025 are: Tax Rate Individuals Married Filing Jointly 10% Up to $11,925 Up to $23,850 12% $11,926 to $48,475 $23,851 to $96,950 22% $48,476 to $103,350 $96,951 to $206,700 24% $103,351 to $197,300 $206,701 to $394,600 32% $197,301 to $250,525 $394,601 to $501,050 35% $250,526 to $626,350 $501,051 to $751,600 37% $626,351 or more $751,601 or more Net Investment Income Tax. A Net Investment Income Tax of 3.8 percent is imposed on unearned income of individuals whose adjusted gross income exceeds $200,000 ($250,000 for joint filers). For purposes of the tax unearned income includes interest, dividends, most capital gains, and income from passive business activities. Federal Deduction for Qualified Business Income of Individuals. The 2017 Tax Cuts and Jobs Act added a new section 199A to the Internal Revenue Code providing that non-corporate pass- through taxpayers may deduct up to 20 percent of qualified business income from gross income from a partnership, S corporation, or sole proprietorship or deduct up to 50 percent of the greater of W-2 wages paid by the qualified business or the sum of 25 percent of W-2 wages plus
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