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How does an LLC work?

Updated: Jun 24, 2021

Wondering about owning an LLC and taxes that come along with it?

First things first:

  1. When you form an LLC and become an owner, or “member,” and you probably put money into the business to get it started.

  2. Your contribution to the LLC as a member is called your capital contribution. This capital contribution gives you a share in the LLC, and the right to a percentage of the profits (and losses). If you are the only member, you have 100% of the ownership.

Now for my favorite part - taxes!

Did you know there are different ways an LLC is taxed based on ownership?

- LLCs with one owner are single-member LLCs. They are taxed like a sole proprietor, reporting business taxes on Schedule C of their personal tax return. Unfortunately, LLCs pay the same high tax that sole proprietors do but you do get the added protection of being a Limited Liability Company in case you are ever sued.

- LLCs with multiple members are taxed like partnerships.

- Your capital contribution works the same way for both types of LLCs.

If you’re profiting more than $40k per year in your sole proprietorship or LLC - we should DEFINITELY chat about tax strategy and how much changing your entity type can save you in taxes.

Questions about LLCs and taxes? Send me an email and tell me what your future goals are for your small business so we can determine the best way to run it (and save you money at the same time, of course).

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