LibGuides: 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

Ohio limited liability company : forms and practice manual by Harry Henning
Call Number: KFO 207.5 .A65 H46
Publication Date: 2021
Asset protection planning by Gideon Rothschild
Call Number: KF 6289 .A1 T35
Publication Date: Current through 2018
Bloomberg Law Tax management estates, gifts, and trusts portfolios ; 810-3rd
Drafting LLC and partnership operating agreements by Joseph Boucher
Call Number: KF 1380 .B68 2011
Publication Date: 2011
Family limited partnerships and limited liability companies by Louis Mezzullo
Call Number: KF 6289 .A1 T35
Publication Date: Current through 2018
Bloomberg Law Tax management estates, gifts, and trusts portfolios ; 812-3rd
Guidebook to Ohio Taxes by Edward J. Bernert and Kelvin M. Lawrence
Call Number: KFO 470 .A73
Publication Date: 2017
Ohio Business Entities by Zolman Cavitch and Matthew Cavitch
Call Number: KFO 210 .S434
Also available as an ebook for Central Ohio attorneys with a FCLL Library card. Also available on Lexis from the Franklin County Law Library public computers.
O'Neil and Thompson's Oppression of minority shareholders and LLC members
Call Number: KF 1448 .O5 2004
Partnerships - Conceptual Overview by Manning, Elliot
Call Number: KF 6289 .A1 T35
Publication Date: Current through 2018
Bloomberg Law Tax Management Portfolio, no. 710-2nd.
Ribstein and Keatinge on limited liability companies.
Call Number: KF 1380 .R54
S Corporations: Federal Taxation by Richard Blau
Call Number: KF 6491. B56

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.

26 USC 199A
The tax reform law created new Section 199A of the Internal Revenue Code, which provides for a deduction of up to 20% of a pass-through entity's qualified business income. Qualified businesses don't include specified service trades.
The tax reform provision also excludes performing services as an employee from the definition of a qualified trade or business. However, if you're a specified service business but your income is less than $157,500 for single filers or $315,000 for joint filers, then you can still claim the 20% deduction. If your income is up to $50,000 higher for singles or $100,000 for joint filers, then a partial deduction is available.
26 CFR 301.7701-2
First part of the "Check-the-Box" Regulations.
26 CFR 301.7701-3
Second part of the "Check-the-Box" Regulations.

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.

Oh. Rev. Code Sec. 5747.41
General rule is LLCs must withhold, and pay to the Ohio Treasurer, an amount equal to 5% of the distributive share of income, gain, expense or loss allocable to individuals.
Oh. Rev. Code Sec. 5733.41
Tax on qualifying pass-through entity having at least one qualifying investor that is not individual.
Oh. Rev. Code Sec. 5733.40(I)
Nine exceptions to the withholding rule.
Oh. Rev. Code Sec. 5751.01
Most LLC's are subject to the Ohio Commercial Activities Tax (CAT).

Forms

Form 1065
File this if you choose to be taxed as a partnership.
IRS Form 8832 and related IRS publications
Use this form to make or change your classification with the IRS under the "Check-the-Box" Regulations.

In the News

Trump said this tax break was for small businesses. It’s giving $17 billion to millionaires this year. Those making $1 million or more will save $17 billion on the “pass-through” tax deduction this year. By 2024, they’ll save more than $30 billion.
Vox 4/24/18

Tax Law Research : Federal and Ohio: Taxation of LLCs