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Frequently Asked Questions

How can an LLC benefit from corporate tax status and what is the process to achieve this?

Limited Liability Companies (LLCs) can benefit from corporate tax status in several ways. Primarily, LLCs that retain a significant portion of their profits within the company may find corporate tax status advantageous. As of 2018, all C corporations are taxed at a flat rate of 21% on all profits, which is lower than the top three rates for individual filings, ranging from 32% to 37%. This means that LLCs could potentially save money on taxes by electing to be taxed as a C corporation. To achieve corporate tax status, an LLC needs to file IRS Form 8832, Entity Classification Election, and check the "corporate tax treatment" box. However, it's important to note that corporations face the issue of double taxation. The company pays the 21% corporate tax, and then members pay tax on individual dividends at rates for capital gains, which can be as high as 23.8%. Retained earnings, however, are not subject to this double taxation.
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