Series LLCs and Tax Elections


If you have or are thinking about using a Series LLC in business, you’ve probably heard about the great flexibility and ability this structure offers. This is especially true when it comes to taxes.

All LLCs are what we call tax chameleons. Of all business structures, LLCs are the only ones able to make whatever tax election they want. So you can have an LLC that is treated by the IRS and state government as a Corporation or an S Corporation for taxes, even though legally it’s still an LLC, with all of the extra asset protection that LLCs provide.

With Series LLCs, we take that one step further. As you create Cells under the parent, those Cells can also make separate tax elections. So you may have a Cell that is treated as an S Corporation, along with a handful that are treated as partnerships or even disregarded entities reporting on your personal tax return.

The rules around this were unclear for a long time. That’s part of the reason Series LLCs have not see the same rapid growth that LLCs saw when they were first introduced to the US legal landscape, back in the 70s.

But back in 2010, the IRS released a set of draft Regulations dealing specifically with Series LLCs and taxation. These regulations addressed the issue of whether or not the Cells could make separate elections, and said YES. In fact, the IRS went a step further and said each Cell must make its own tax election.

So when you’re planning your next business venture and are thinking about the best entity structure, you might want to take another look at a Series LLC. It’s fast, less expensive than multiple separate entities, and may be the last business structure you create.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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