How is an LLC taxed? Does it pay taxes?
An LLC has the option to be taxed (a) directly as a corporation or (b) depending on the number of members, a partnership or a sole proprietorship. If it elects under state and federal law to be taxed as a corporation, then all its worldwide income is subject to taxation at the entity level, and any distributions to the members are taxable as dividends. Therefore, most LLCs choose plan (b) to take advantage of “flow-through” taxation, in which the LLC records its profits and losses and allocates them to the members according to the operating agreement. If the company has elected to be taxed as a sole proprietorship, then there are no annual taxes or fees payable to the State of New York. Further, if the company elects with the state and federal governments to be taxed as a partnership, and if there is no US-resident members and no US-source income, then there is no taxes or fees to pay, nor returns to file with New York or the federal government.
