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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Can LLCs pay the owner as an employee?, which kind of business

Resolved Question:

Can LLC's pay the owner as an employee?, which kind of business entities can pay the owners as employees report pay payroll taxes and deduct that expenses as a business expense?
Submitted: 8 months ago.
Category: Tax
Expert:  Lev replied 8 months ago.

Lev :

Hi and welcome to our site!
That is possible if the LLC is treated as a corporation - then it will be a separate entity and the owner will receive a compensation for services in form of wages.
However - if the LLC is a disregarded entity or a partnership - there is no employer-employee relations - and to classify the compensation as wages would not be appropriate.

Lev :

A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations.
Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes.

Customer:

so which kind of business entity can pay its owners as employees?

Customer:

Solepropietorship?

Customer:

LLC's no partnership?

Customer:

S Corporation

Customer:

C Corporation

Lev :

As an owner of the LLC - you may file Form 8832 and affirmatively elect to be treated as a corporation.
Only for S Corporation and C Corporation - you may be treated as an employee of the LLC.

Customer:

I have to file that from with the Secretary of state or with the IRS?

Customer:

I mean the Form 8832

Lev :

For sole proprietorship - the LLC is “disregarded entity” - means it is ignored for income tax purposes - and all income and expenses are treated as revived and paid by the owner. In this case the owner - may not be an employee of himself.

Lev :


I have to file that from with the Secretary of state or with the IRS? I mean the Form 8832
Yes - the form 8832 is used to select the tax treatment.
Here is the form - http://www.irs.gov/pub/irs-pdf/f8832.pdf
You may choose the LLC to be treated as S Corporation or C Corporation.



Lev :

If the LLC is a corporation, normal corporate tax rules will apply to the LLC and it should file a Form 1120, U.S. Corporation Income Tax Return . The 1120 is the C corporation income tax return, and there are no flow-through items to a 1040 from a C corporation return. However, if a qualifying LLC elected to be an S Corporation, it should file a Form 1120S, US Income Tax Return and S corporation laws apply to the LLC. Each owner reports their pro-rata share of corporate income, credits and deductions on Schedule K-1 (Form 1120S).

Lev :

For additional information on the kinds of tax returns to file, how to handle employment taxes and possible pitfalls, refer to Publication 3402, Tax Issues for Limited Liability Companies

Customer:

okidoki, thank you very much

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22618
Experience: Taxes, Immigration, Labor Relations
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