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Tax Law Research : Federal and Ohio: Taxation of LLCs

Taxation of LLCs

This page discusses the taxation of a for profit LLC only. See the Non-Profit LLC page of this guide for information on receiving tax exempt status for a non-profit.

The federal tax reform bill passed at the end of 2017 provides tax incentives for incorporating into an LLC. Please see your tax advisor for more information. 

LLCs are a favorable form of business entity because you can choose how the IRS should tax your LLC. Here are your choices and some reasons why you would choose to be taxed that way:

  • As a sole proprietorship – when the business has one owner.
    • To own real estate rental property
    • For a business that has passive investment income such as stocks, bonds and mutual funds.
  • As a partnership – when the business has two or more owners.
    • To own real estate rental property
    • For a business that has passive investment income such as stocks, bonds and mutual funds.
  • As a C corporation
    • For financial privacy to keep business income from appearing on one’s personal tax returns.
    • For an individual or family with high medical expenses.
  • As an S corporation
    • To operate an active business.
    • To save the 15.3% self employment tax (consisting of Social Security and Medicare) on distributions to the shareholders.

This guide is merely an introduction. Please see your tax adviser for more details.

Books in the Franklin County Law Library on Taxation of LLCs

OSBA members who have attended any OSBA seminar, have access to this OSBA publication as an an ebook at https://www.ohiobar.org/ForLawyers/CLE/Pages/CLE-Publications-eBook-Library.aspx.

Federal Taxation Laws

The Internal Revenue Code does not provide a specific regime for LLC federal taxation. Instead the LLC must be taxed under one of the existing tax structures, namely as either a partnership or a corporation. Under the "Check-the-Box" Regulations LLCs  are treated as pass-through entities, which means that the partners (or sole owner) just pay taxes on their individual tax return(s), unless an affirmative election to be taxed as a corporation or an S Corporation is filed with the IRS. The complexities of S Corporation taxation are beyond the scope of this guide. Please see a tax advisor for further information.

Video

S-Corp or LLC - Which is Better? (By John M Miller, CPA) 

Ohio Taxation Laws

Ohio LLCs are not taxable entities as such, but Ohio does impose filing, withholding, and tax remission obligations on them.

Forms

Links