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.

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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.