It is important that all Florida LLCs are aware of the requirements in terms of paying taxes. You do not want to get into trouble with the IRS for failing to pay taxes as this can lead to massive fines or worse. To ensure that does not happen, take note of the most pertinent information regarding Florida LLC taxes. It is also wise to consult an accountant or tax professional for further assistance.
Pass-through Taxes With Florida LLCs
It is a common misunderstanding when forming an LLC that it would be wise to do so in a state without income tax. The idea is that you would save money on annual taxes. In reality, however, LLCs typically have pass-through taxation. Because of that, you are unlikely to see tax benefits by forming in a state without income tax, meaning there is no reason not to form in Florida.
Pass-through taxation essentially means that the earnings from the company “pass through” and end up on your own personal income taxes. So, even if you established your LLC in a state without income tax, the profits would end up being taxed on your personal taxes in Florida. In other words, the biggest factor for the LLC taxation rules is the location you live in.
Pass-through tax classifications are the default setup for LLCs. LLCs with a single member are known as disregarded entities. Those with multiple members are considered partnerships.
If your LLC falls under a partnership, you will submit a report known as K-1. The owners will then report the income from the K-1 report within their own personal statements. There are no taxes associated with submitting the K-1 report; it just ensures that you honestly report your earnings.
If you prefer, you can change your taxation status to an S Corp. It is different, not necessarily better. You will want to consult with your accountant or tax expert to see if this status would make more sense for your company than a partnership or disregarded entity.
How to Change the Classification
In cases where you do decide that S Corp taxation makes more sense for your business, there is a specific process to change the classification. When you apply for the EIN, you will receive the IRS default classification based on your type of LLC. Within 75 days following receipt of your EIN, you can submit one of two forms to change your tax classification and take advantage of it being retroactive. If you submit the forms after this point, the change will not apply retroactively. Do not take the decision to switch classifications lightly as you can only do so one time every five years.
Those who want to receive the taxation classification of an S Corp will submit form 2553. Those seeking another classification will submit form 8832. The same company that helped you file the relevant documents to create your LLC should be able to assist you with this filing as well.
As mentioned, it is a smart decision to consult an accountant or tax professional for assistance with your LLC taxes and K-1 report submission. This will help you avoid costly mistakes.