What Is An LLC Tax Deduction?

By: Michael Williams

Limited liabilities companies or LLCs are a tricky bunch to get any kind of LLC tax deduction on. This is because the LLC tax reduction is not actually recognized by the federal government. This can make it difficult for those who classify themselves as LLCs to pay their federal taxes. But there are three options that they can try to gain a tax rebate if they are willing to put in a little extra effort.

One of these is filing as a corporation. Another is if they file as a partnership. One last way is to file as a sole proprietorship.

The government itself usually classifies LLCs as corporations and this is how they are usually taxed. But doing so may disqualify them from the full benefit of a LLC tax deduction.

The ones that are usually classified as corporations are ones that were started under a State or Federal statute or under a statute affecting a recognized Indian tribe. These ones cannot usually qualify for the deduction. Other ones that may have a difficult time with the tax reduction include those who fall under the description in section 1.892.2-T or under Regulations section 301.7701-3 or any company considered an insurance company as well.

Otherwise if a business claims to be a LLC but is not a corporation they can file a special form, Form 8832 and choose to be a corporation or partnership. As long as there are at least two members they will qualify to conduct business under one of these headings. If there is only one member they can only be classified as a corporation. Still taking advantage of the LLC tax deduction can prove to be difficult.

There is a default rule that can be taken advantage of if a LLC decides not to file a Form 8832 at all. If there are at least two members it will automatically be qualified as a partnership, and if there is only one it will automatically be qualified as a sole proprietorship. This means they have to file taxes as such and try for a reduction under these headings.

Two tips that are helpful in taking advantage of getting a LLC tax deduction is to first of all definitely file a Form 8832. The other piece of advice would be to get the help of a certified tax accountant or consultant. As you can see there is not actually a LLC tax rebate, but you can take advantage of tax deductions even if you are a LLC. To get the most out of a LLC tax deduction, be careful how you classify yourself and you will get the most you can out of it.

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