In 1997
and 1998, both the Federal government (Internal Revenue
Service) and the State of Florida passed regulations that
got rid of an entire body of complicated tax rules
applicable to the Florida limited liability company.
Automatic
Qualification of Single Tax Structure
As a
result, for federal tax purposes, the
Florida LLC automatically qualifies for pass through tax
treatment. This means that it is subject to only one
level of tax. This is one of the reasons the formation
of LLCs has greatly surpassed corporations which are by
default subject to double taxation.
Single Member
v. Multiple Members
While
every LLC qualifies automatically for this single layer of
tax, the specific process and set of rules varies depending
on whether the Florida limited liability company is owned by
one member or by multiple members.
A
single member LLC is considered a disregarded entity for
federal tax purposes only. As a result, the single
owner reports business income and losses on his or personal
tax return (Schedule C) in the same way a sole
proprietorship is reported. This reporting structure
does not affect the limited liability protection of the
single owner under state laws.
Multiple member LLC entities are taxed as partnerships for
federal income tax purposes. Under these tax rules,
the Fla limited liability company prepares an informational
tax return only that it files with the IRS but the tax
consequences (profits and losses) are passed through to the
members in accordance with their agreed upon method of
allocations.
Any LLC
Can Elect Corporation Taxation
The
single layer of taxation is the default structure only.
Another great benefit of this kind of legal entity is that
the IRS allows it to elect to be taxed under the C
corporation or S Corporation structure if it chooses to.
The S corporation requirements must be met for S corporation
tax treatment.
Florida
Tax Treatment of LLCs in Fla
Florida does not impose an
individual income tax but does impose an income tax on
corporations. When it comes to a Florida limited
liability company, the Florida Department of Revenue follows
the federal tax classification scheme for determining the
tax entity status for state purposes.
This was not always the case
as Florida was notorious for its complicated "artificial
entity" taxation rules that applied to LLCs before 1998.
Since then, the Florida legislature came around with tax
friendly laws for Fla limited liability companies and as a
result, if the LLC chooses the default Federal taxation and
there are no corporate entity owners, it is possible to
escape state of Florida corporate taxation.
CLICK HERE NOW for more details about our guaranteed 3
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Forming a Florida LLC.
Please note that we are not accountants and tax laws may
change often so please seek the advice of your accountant to
make sure you fully understand the tax consequences and
requirements for your particular LLC situation.