A New York business generally has the right to operate as a limited liability company. This is often true even if the company has a single owner. Many entrepreneurs opt for this form of legal entity when they are establishing a new venture, as it protects their personal assets from creditors of the business and in many cases is easier to operate than a corporation. Let’s take a closer look at what you should know about the tax treatment of an LLC.
How does an LLC change its tax status?
By default, an LLC that has a single owner will be treated as a disregarded entity. This means that any profits or losses that the firm generates will flow directly to your personal return. If your organization has multiple owners, it will typically be taxed as a partnership unless you indicate otherwise. You can choose to be taxed as a corporation by submitting Form 8832 to the IRS.
When will tax elections take effect?
A change in your company’s tax status becomes official when the IRS processes Form 8832. However, the effective date can be up to 75 days prior to the date that it was submitted to the government. This means that if you filed the form on March 15, a decision to change your company’s tax treatment could take effect on Jan. 1.
A business law attorney may provide more insight into this issue. It may also be possible to reach out to the IRS directly if you have any questions about meeting your tax obligations.