LLC and taxes

[HardDrive]

I thought we might have touched on this here before, but I didn't find a thread.

We live in OH. Wife has an LLC in WA that she started last year. She is the sole owner. Made $28k. All of that money was earned in WA. She has not paid herself anything (she's trying to build up a nest egg to get a commercial space).

I understand that an LLC is a 'pass through entity', and thus doesn't get taxed itself. But none of the money has 'passed through'. It's still sitting in the LLC's accounts. Soooo.....I don't get it. Does she still have to pay taxes on the money that was made, even though she has not paid herself any wages?

[Shaun @ Tru6]

Single member LLCs are taxed as sole proprietorships.

[Bob Kontak]

Originally Posted by HardDrive

Does she still have to pay taxes on the money that was made, even though she has not paid herself any wages?

Income was earned. She has access and may distribute anytime to herself. Her choice.

I won't advise but smells like taxable income to me.

[SeanPizzle]

LLC income taxed as individual income. Keep records of income and expenses in a spreadsheet or quickbooks. Now that you have $28K in income, you need some expenses to offset it. Travel to the property, maintenance,insurance, taxes etc.

[Halm]

And she will owe WA state tax on it.

[HardDrive]

Originally Posted by Halm

And she will owe WA state tax on it.

No income tax in WA.

[Halm]

Originally Posted by HardDrive

No income tax in WA.

Cool!!!

[berettafan]

With pass through entities the net income is taxable to owners regardless of distribution. There are other complications regarding distributions and basis but we won't get into that here.


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[berettafan]

To say nothing of guaranteed payments. But again that's $$$ per hour stuff.


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[Baz]

Pardon the sidebar folks....since the subject is taxes...just going to leave this here for those interested....




Now back to Hard Drive's thread.....

[john70t]

Originally Posted by HardDrive

Does she still have to pay taxes on the money that was made, even though she has not paid herself any wages?

You are asking if she will owe Ohio taxes?
Even though the LLC is located in Washington which 1)-doesn't have income tax and 2)-no distributions/self-payments were made?

It looks like a single-member LLC is a “disregarded entity”. Pass though taxation same as owner.
Obviously Federal tax is going to be the same anywhere.
(Not sure what the threshold income penalties are for not making quarterly estimated payments.)

https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
And an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it files Form 8832 and affirmatively elects to be treated as a corporation.

It looks like most states treat LLCs acording to the owner's location as well.

How LLC Members Are Taxed | Nolo.com
State Taxes and Fees
Most states tax LLC profits the same way the IRS does: The LLC owners pay taxes to the state on their personal returns, while the LLC itself does not pay a state tax.

There is a blip here about having to 'qualify to do business in a state'.
(Not sure what that means.)

Conducting Business as a Corporation or an LLC Out of State - FindLaw