California law generally allows individuals to form limited liability companies, or LLCs. An LLC can be taxed as a partnership, a corporation or a disregarded entity. If the company is taxed as a disregarded entity, profits or losses will be included on the owner’s personal tax return. If an LLC has two members, it will automatically be labeled as a partnership unless the members specifically elect to be treated as a corporate entity.
In the event that the LLC has only a single member, it will be a disregarded entity by default. However, for employment or excise tax purposes, the LLC would still be a separate entity from that member. To change that status, the single member would need to file Form 8832. Any LLC that wants to deviate from its default tax status must file the proper paperwork within one year of its formation date.
Furthermore, any decision to change the company’s tax status cannot take effect more than 75 days prior to the day the election is filed. In the event that such an election is not filed in a timely manner, it may be possible for the LLC to seek relief from the IRS. Members of an LLC can include individuals, other corporations or other LLCs, and there is typically no limit to the number of members an LLC may have.
Reading a California business formation blog or working with a business law attorney may make it possible for entrepreneurs to determine if starting an LLC is right for them. An attorney may help those who want to change their tax status do so in a timely and proper manner. Attorneys might also help business owners resolve any issues that they have with state or federal tax authorities.
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