Basic Taxation of an Ohio LLC and Corporation

Elliott Stapleton Limited Liability Company-LLC

An LLC  can be a pass-through entity for federal income tax purposes. A pass-through entity means that taxes are only paid once at the member level. There is no federal taxation at the LLC level; thus the “pass-through” tax effect.

The members report the profits and losses on their individual tax returns. When there is more than one member this also requires the filing of a partnership tax return.

Here is an illustration of the pass-through taxation:

An Ohio corporation is not a pass-through entity. By default, when you incorporate the company is designated as a C-corporation (Sub-chapter C of the Internal Revenue Code).  This means that a corporation is taxed twice; once at the corporate level and once at the shareholder level. The corporation will need to file a tax return to reflect the profits and losses and the shareholders will need to file a tax return to reflect the distributions (also referred to as dividends) made to them.

Here is an illustration of the C-corporation’s tax process:

 

There is also an option for a corporation (typically referred to as an S-corp) to only have one level of taxation. An S-corporation has pass-through taxation but with a strict standard of distributions to the shareholders.

Before selecting an entity it is best to review the benefits and drawbacks to all three types of entity, LLC, C-corporation, and S-Corporation, before making a decision.

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About the Author

Elliott Stapleton

Elliott is a partner in the firm of Cornetet, Meyer, Rush and Stapleton, LPA. His business clients range from small single member companies to large privately held businesses. Elliott’s legal services include advice on Business Formation and Transactions, Real Estate Transactions, Trademark Law, Copyright Law, Estate Planning, and Probate Administration.