LLC – Big Tax Consequences Many Unaware Of

As a Miami CPA, new clients will often say “I want to start an LLC for my new small business venture”. My response almost always is “why an LLC?” Most people do not understand that an LLC is not a corporation, its a partnership. As such, the net profits of the partnership will be distributed to the members (owners) via form K-1. If you actively participate in the business, the net profits will flow through to your personal tax return as “active income” and you’ll have to pay income tax. That much I think everyone is aware of. Where people get sticker shock is they also have to pay self-employment tax which amounts to an additional 15.3% of the next profits.