If you’re a business owner, you’re probably familiar with the standard LLC. But what about a series LLC? If your company is structured as a series LLC, Are Series LLCs taxed differently than ordinary LLCs? So how does it work? What are the benefits of this type of setup? And what can go wrong if you try to get too fancy with your taxes? We’ll cover all that in this guide.
What is a Series LLC?
A series LLC is a way to organize a business as a series of separate legal entities. Each series can be taxed separately, so it may be beneficial to use them if you want to keep some assets or liabilities separate from others.
For example, if you own real estate in one state and personal property in another, it might make sense for each piece of property to have its own series within the LLC (so your real estate would be contained in Series A and your personal property in Series B).
The same is true for members—each member can have his own membership interest in each series. This means that no matter how many members there are overall, there will always be a maximum number of members per individual part of the business (though this limit varies by state).
For example: If there are five people working together on their business plan but only three partners who own shares together under an S-corp structure, then they could set up two independent LLCs instead: One with just those three owners (Series A) and another where all five owners had equal stakes (Series B).
Why Would a Business Choose a Series LLC for Your Small Business?
The following are some of the benefits of a series LLC for small businesses:
- Tax planning. If you’re in business, you know how important it is to keep your taxes low and legal. Series LLCs provide owners with the ability to separate their assets and liabilities into different series. This allows them to focus on certain aspects of a project that may be more profitable than others or need more attention from management. Keep in mind that there are still some legal requirements related to this type of tax planning; consult an attorney before making any major changes.
- Protection from liability claims by separating assets such as real estate and other property owned by each member individually rather than collectively through the series entity itself (this includes any claims arising out of such ownership).
- Privacy protection because only information regarding each individual series’ activities will appear on public records when filing annual reports/taxes (not every single activity within its jurisdiction).
What are the Disadvantages of a Series LLC?
The most significant disadvantage of a Series LLC is that it’s more expensive to set up than other forms of incorporation. The filing costs for a series LLC are $1,850 (plus $350 for each additional member), making it more than twice as expensive to create an LLC with members.
However, there are some other downsides as well:
- More paperwork: When you file an annual report with your state, you must also file separate reports for each individual series within the LLC. These can be time-consuming and tedious to prepare, especially if your business has multiple series that operate independently from one another.
- More complicated: Because there are different rules and regulations governing each individual series in the same company structure, managing them requires more knowledge and expertise than managing just one entity would require. This can make things more difficult if you ever have problems with any of your companies or need advice on how best to manage them all together in concert without running afoul of legal requirements or risking breaking any laws by accidentally violating some obscure regulation somewhere along the line!
Does the IRS Recognize Series LLC?
The IRS does not recognize the series LLC at this time. The IRS has not issued any guidance on how it will treat a series LLC, and it is unclear whether or not the IRS will ever issue official guidance on series LLCs.
The IRS has also not provided specific guidance on how it will deal with members of a series LLC.
How are Series LLCs Taxed?
Unlike a regular LLC, which is taxed as a separate entity for federal, state, and local purposes, series LLCs are treated as if they’re a single entity. That means the taxes you pay on your series LLC will be the same as if it were one large corporation.
The main benefit of this tax treatment is simplicity. It allows you to file your taxes in one place without having to worry about filing separately for each individual series inside your company structure (though some states do require separate filings). The downside is that there aren’t many ways for an S-Corp or C-Corp owner to reduce their taxes with an SLLC compared to what they could do with other types of corporations.
While there are some reasons why it might make sense to use an SLLC over another type of business entity—for example, if you want access to more flexible financing options—it’s important not to overlook how much more complicated they can make things when it comes time to file year-end returns and estimated payments.
Federal Taxes as a Series LLC
As a Series LLC, you can elect to be taxed at the entity level or pass-through taxation. If you choose pass-through taxation, your income from rents and other business activities will be included in your personal returns. You may also have to pay self-employment tax if you’re an owner in charge of managing the day-to-day affairs of your company.
If you opt for entity-level tax filing, all profits are included in a single return for the series with no further reporting on the individual series’ returns. This is beneficial because it reduces paperwork and costs associated with preparing multiple tax returns each year; however, this option can result in a higher tax rate than if all profits were passed through individually as they’re earned by each series member.
State Taxes as a Series LLC
If you have a Series LLC, the federal government will treat it as a single entity for tax purposes. This means that any income or losses generated by your company are reported on one 1065 tax form. Likewise, state and local governments will also see your series as one entity.
In some cases, however, your series may be treated differently than others in your LLC. For example, if a series is organized in Delaware but operates outside of that state (for example Nevada), then they might be subject to separate taxation at both levels. The same applies when an individual resides in one state while conducting business within another (for example New York residents with investments in Ohio).
Conclusion
This guide is intended to give a general overview of how series LLCs are taxed. It should not be considered legal or tax advice and is not a substitute for professional advice. Please consult your own attorney or tax adviser for specific guidance on what may apply to your situation.
