There are a number of benefits to choosing a series LLC as your business structure. You get necessary liability protection, plus business flexibility. But what many business owners don’t think about before choosing to designate their business a Series LLC is the tax ramifications. Let’s dive in to find out everything you need to know about series LLC tax treatment.
Series LLC 101
Before we dive into taxes, here’s a quick refresher on what a series LLC is. A series LLC is a form of Limited Liability Company or LLC. A series LLC is unique in that it has a main or master LLC and a series of independent LLCs beneath it (in some ways, like a holding company). A series LLC can be made up of as many independent LLCs as you need.
Each entity in a series LLC has its own liability protection, name, financial records and managers and can enter into contracts without consulting the other LLCs. But, the governing documents of the main LLC apply to all LLCs within the series. Assets owned by one LLC are shielded from the risks of other series. This allows business owners to segregate risk without the cost of setting up totally new entities.
Forming a series LLC follows the same process as a typical LLC. The main difference is that the Articles of Organization must state that the LLC is authorized to form a series. The most common use of the series LLC business designation is for real estate businesses that hold a number of different properties.
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Does the IRS Recognize Series LLC?
As we'll go into more detail below, there is no specific tax status for a series LLC. In 2010, the IRS determined that series LLCs would simply be treated as separate entities for federal income tax purposes, regardless of any state recognition.
Series LLC Tax Treatment
Series LLC tax reporting is similar to a traditional LLC. While each LLC within the series acts as a separate entity for governing and liability, when it comes to taxes, the series LLC is treated as a single entity and therefore submits just one tax return.
A series LLC, like an LLC, is considered a pass-through entity, so the earnings and losses of the series pass through to the main LLC. While each series can have a separate bank account, it’s not necessary. Every LLC in the series can share one bank account. Mixing funds for all businesses together may be a headache at tax time, though, so opening separate accounts may be the better choice.
As a pass-through entity, a series LLC owner can choose how they want to be taxed at the federal level, just like an LLC. This means choosing between tax designations such as partnership, corporation or disregarded entity, where the taxes will be on the owner's personal tax return.
While some information is known about how series LLCs are taxed, not everything has been litigated in a court of law and is therefore unknown or uncertain. Since a series LLC is a state and not a federal designation, it’s important to break down taxes based on the state and federal levels.
State Taxes as a Series LLC
Since the series LLC is a state designation and not federal, the tax regulations for series LLCs vary from state to state. As well, tax regulations around series LLCs are changing as the entity is being used more.
For example, a series LLC that operates in California may be required to pay the LLC annual tax and file a tax return for each LLC in the series. In comparison, a series LLC in Texas is considered a single entity for franchise tax purposes.
As these laws fluctuate, your series LLC business may benefit from the help of a knowledgeable small business accountant.
Federal Taxes as a Series LLC
Since a series LLC is a pass-through entity and isn’t a federally recognized business designation, it is treated as a traditional LLC. Currently, the IRS taxes a series LLC as a single entity that files one tax return.
Just like a traditional LLC, which is also a pass-through entity, a series LLC has tax advantages that can save you money on your taxes. Filing as an LLC can save you from corporate taxes that you would pay under a different business entity, like a C Corp. In some instances, a series LLC can lower the taxes you pay as compared to a sole proprietorship.
A series LLC owner will file federal taxes in the same way that an LLC does. The series LLC will file a single tax return as the main LLC. All income from the LLCs in the series will be included on the Schedule E portion of the owner’s personal tax return.
Series LLC Tax Reporting
When it comes to taxes, a series LLC is surprisingly simple at the federal level. A series LLC is taxed just like a traditional LLC, on a single federal tax return and as a pass-through entity. Because a series LLC is a state business designation, state taxes will vary from state to state. With the help of Bizee's Accounting and Bookkeeping service, navigating your series LLC taxes is simple.
FAQs
Series LLC tax reporting is similar to a traditional LLC. While each LLC within the series acts as a separate entity for governing and liability, when it comes to taxes, the series LLC is treated as a single entity and therefore submits just one tax return.
How are series LLCs taxed? ›
Currently, a series LLC can file one federal tax return that encompasses the master LLC and all the series. However, the IRS has issued guidance suggesting that each series should be treated as a separate taxable entity. If that guidance is ever adopted, you'll need to file a tax return for each series.
What are the disadvantages of a Series LLC? ›
The biggest problem with series LLCs is that many states (including California) don't have series legislation and may choose to ignore the laws of the state where the series was created. That's because you're subject to their rules when doing business in their state.
What is the difference between a regular LLC and a Series LLC? ›
A Series LLC gives you all the same benefits as a regular LLC, but it serves as a sort of "umbrella company" with additional flexibility and protections for multiple companies or lines of business within your overall operation. But who uses a Series LLC? One example is rental property owners.
Is a Series LLC worth it? ›
Series LLCs are an ideal choice for real estate investors looking for a strong liability shield. There is no minimum or maximum limit on the assets an LLC can hold so investors could potentially keep each property they own in a separate LLC under the parent LLC.
What are the advantages of a Series LLC? ›
Advantages of a Series LLC for Real Estate Investments
For example, if someone falls and becomes injured at one property, only the assets of the series set up for that property are at risk. Minimize expense – Regardless of how many series will be part of a series LLC, the business pays only one formation filing fee.
How is LLC taxable income calculated? ›
The business owner files federal income taxes for LLCs as personal income on their individual tax return. If an LLC has two or more owners, each owner is responsible for a percentage of the business's income equal to the percentage of the business that they own.
Does each series in a series LLC need its own EIN? ›
If a final regulation is published, a Series LLC that previously was treated as one entity with all of its series may be required to begin treating each series as a separate entity for Federal tax purposes.
Which states do not recognize series LLC? ›
Alabama, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, Wisconsin, and Wyoming all allow some form of the series LLC. California does not form domestic series LLCs, but a series LLC formed elsewhere can ...
Can series LLC have different owners? ›
A series can have different members, management, business purposes, and objectives than the parent LLC, or it can have the same members, management, and purpose as the parent. The procedure for adding a series begins with amending the operating agreement to reflect the addition of a new series.
You can convert an existing LLC into a series LLC by filing the appropriate amendment forms in states that allow it or dissolve and create a new foreign series LLC.
Does each series LLC need its own bank account? ›
Written by Zachary Copp, Esq. Each series can have a separate bank account, but it is not required.
Can a series LLC be member-managed? ›
Also, depending on the management structure, an LLC can be member-managed or manager-managed. Depending on the relation to the formation state, LLCs can be domestic or foreign. Foreign LLCs are legal entities incorporated in one state (e.g., Delaware) and authorized to do business in another one (e.g., Georgia).
How do series LLCs pay taxes? ›
A series LLC owner will file federal taxes in the same way that an LLC does. The series LLC will file a single tax return as the main LLC. All income from the LLCs in the series will be included on the Schedule E portion of the owner's personal tax return.
What is the best state for a Series LLC? ›
States Permitting Series LLCs
- Delaware. Considered a pioneer in Series LLC legislation, Delaware provides a robust legal framework for Series LLCs, making it a popular choice for businesses looking to establish this structure.
- Illinois. ...
- Iowa. ...
- Nevada. ...
- Oklahoma. ...
- Texas. ...
- Utah.
How to Add and Delete a Series. A series may be added or deleted by amending the Series Operating Agreement. The Series LLC members must sign an Addendum to the Operating Agreement and then separate accounts must be established and records maintained for the new cell.
Are LLC taxed once or twice? ›
Does an LLC have double taxation? LLCs avoid double taxation because they are a pass-through entity—there is no tax on profits at the LLC level, only at the individual member level.
Does each Series LLC need a separate EIN? ›
Does each series need to file a separate tax return? Under Texas law1, each series is not a separate entity. The IRS, however, issued a proposed regulation2 in 2010 that articulates their view that each series should be treated as a separate entity for federal tax purposes.
Are LLC distributions taxed as ordinary income? ›
LLC distributions are a frustrating subject for business owners hoping for straightforward answers about taxes. This article is meant to simplify what business owners need to know about their distributions. LLC distributions can be taxed as ordinary, passive, or other kinds of income.
Do series LLCs need separate bank accounts? ›
To maintain limited liability, each LLC in the series must have its own bank account, separate assets, and separate books and accounting. These must be kept separate from each other and from the parent LLC.
