Home > Taxes > Are Taxes For LLC More Complicated Than Sole Prop Taxes?
How much more difficult and complicated are taxes when you own an LLC when you're just a sole proprietor?
In this audio snippet, you'll hear about:
- You are filing a separate tax return, and it is more complicated than a typical Schedule C.
- LLC must provide profit loss and balance sheet, and it may need to be presented in a different accounting method – accrual based accounting
- Might also have to fill out reconciliation forms Schedule M1, M2, and M3
- Should use a qualified accountant because it is more complicated.
Audio Transcript
Travis:
How much more difficult and complicated are taxes when you own an LLC, versus, say, just being a sole proprietor?
Yosef:
Well, you are filing a separate tax return. And that separate tax
return is going to be far more sophisticated than a typical Schedule C.
A typical Schedule C for a sole proprietorship on their own tax return
is a simplified profit and loss statement: it shows how much money came
in and how much money was spent out.
An
LLC return, similar to a corporation return, expects a lot more
information. You have to not only provide a profit and loss; you also
have to provide a balance sheet. In addition to providing both the
profit and loss, and balance sheet, it may have to be presented in a
different accounting convention than the one that a small
businessperson would typically use. A small business will usually use
cash–basis accounting. Depending on the size of the corporation, they
may have to be using accrual–basis accounting.
In addition,
because certain expenses of the business may or may not be deductible
for tax purposes, or may be deductible for tax purposes but not
generally for the accounting principle purposes... [laughs]
Travis:
[laughs]
Yosef:
You have to actually fill out certain reconciliation forms, called
Schedule M–1, M–2, or even M–3, on a tax return. These are complicated.
I would never recommend that anybody in business even attempt to fill
out a corporate tax return, whether it's an LLC or a corporate return.
Travis:
Get the advice of an attorney or an accountant.
Yosef:
Yes.
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