The LLC will actually cause your personal taxable income to go up by $20,000. After filing the Schedule K-1, these numbers must be reported on personal income tax returns. You and your business partner would each file a Schedule K-1, listing $50,000 in earnings and $30,000 in deductions. The business earns $100,000 in one year yet had $60,000 in business expenses that could be deducted. Say you and someone else decide to form an LLC and run the business as a partnership. The amount of profit reported every year must be included on a Schedule K-1. The purpose of the tax return is solely for information. Any income, as well as deductions and credits, should be reported by each owner. Instead, IRS Form 1065 needs to be filed for annual partnership tax returns. When an LLC is treated as a partnership, the LLC isnвЂ™t actually responsible for paying tax on business profits. For five years after electing this, you will not be able to change the designation of your LLC. If you want your LLC to be taxed the same way a corporation is, youвЂ™ll have to submit IRS Form 8832 to elect corporate tax. There are different regulations regarding tax filing for partnerships and sole proprietorships. If you are the only one who owns the LLC, you are required to pay tax on your profits the way a sole proprietor would. Upon officially forming an LLC, your business entity could be considered a partnership by the IRS for income tax only. The LLC tax return could refer to a variety of tax forms that have to be filed to the IRS when operating this legal entity.

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