Have a Tax Question? Ask a Tax Expert
As an LLC, the business is already what is referred to as a flow through entity, meaning that the profit or loss from the business flows through to the individual LLC member or members. If you're an unincorporated single member LLC, you complete the form Schedule C. Setting up an S-corp will likely be the best business entity type for you. With an S-corp, two separate returns are filed, one for the business (S-Corp. return, Form 1120-S), and one your personal income tax return (The Form 1040). The profit and loss from the business flows through to you from the LLC via a Schedule k-1. On the other hand, if you are a multi-member LLC, a partnership return is completed (Form 1065). Note that being incorporated does not guaranteed that you will receive a refund.
Let me know if I can be of further assistance to you regarding this matter.
Filing as an S-corp, the profit or loss is passed through to you. Even if one is due, the S-corp will not receive a refund. The profit from the business is added to your regular income, the loss from the business is subtracted from your income on the form 1040. The return filed for the S-Corporation is an information return only. If a refund is due, it will be due to you as an individual, and not the corporation. As for answering the question, what will guarantee a refund, there are no guarantees, however, when deductions and credits exceed the tax liability, this generates a refund. Having made estimated taxes that exceed the tax liability also generates a refund.
In brief, to avoid double taxation. There are other pros and cons as well. Is your company large or small. If a small business, typically an S-Corp is the better business entity type. Instead of my reinventing the wheel, you can read about the differences between the two types of corps at the following links:
I mentioned that in my first response. SEE BELOW:
Setting up an S-corp will likely be the best business entity type for you. With an S-corp, two separate returns are filed, one for the business (S-Corp. return, Form 1120-S), and one your personal income tax return (The Form 1040). The profit and loss from the business flows through to you from the LLC via a Schedule k-1.
You would not be changing the status of the LLC to an LLC, if you incorporate, you will be changing the status of the LLC to an LLC taxed as a corporation. When you incorporate, depending upon the corporation type that you choose, you would complete the applicable tax form, 1120-S for S corporation or the Form 1120 for the C-Corporation. You will still need to complete the Form 1040. Choosing to incorporate, you will complete two tax returns, one for the business and your personal tax return. Unincorporated, you complete the Schedule C as part of the Form 1040.