Taxation Methods for LLCs and Corporations

Taxation Methods pic
Taxation Methods
Image: smallbusiness.chron.com

For 12 years, James Kasim served at Ernst & Young in Los Angeles, California. Also a certified public and certified management accountant, James Kasim has gained experience in corporate finance. Professionals in this industry identify the impact of taxation on corporate finance, specifically in terms of taxation methods.

Limited liability companies (LLCs) involve four taxation methods, while corporations choose between S corporation and C corporation methods. The Disregarded Entity method applies to LLC’s with one declared owner. Built for legal purposes, this method requires the same taxation as that of a sole proprietorship. Inversely, an LLC with multiple owners practice Partnership Taxation, wherein each partner’s income goes to his/her own tax returns, thereby avoiding double taxation.

S corporations work almost the same way as partnership taxation, except that this method allows single ownership. However, distribution flexibility and stock classes have restrictions for S corporations. On the other hand, net income and losses are not taken from a shareholder’s tax returns for C corporations, thus the possibility of double taxation.

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