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Per the IRS: > The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file as a corporation
by wuputah 16y ago
Per the IRS:
> The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file as a corporation, partnership or sole proprietorship tax return.
As for your suggestion that all pass-through income is W-2 income - that would never work. It implies that all business "profits" were paid to its shareholders (that's what payroll / W-2 income is). A cash distribution to its owner is not the only thing a company chooses to do with its profits!
- anonymous246 16y agoI don't know how it is for S-corps with passthrough, but for LLCs opting for passthrough taxation results in exactly what you describe: you owe taxes even though the profits were not distributed to you because the company decided to reinvest. Search for "allocated profits", "distributed profits", and "phantom income". You owe taxes on allocated profits, not distributed profits. Opting to be taxed as a coporation (or C-corp) avoids all these problems (at the expense of "double taxation").