Owners of a Colorado limited liability corporation may be treated as a sole proprietor or a partnership for tax purposes. The specific tax rules that the owner of an LLC will follow depend on how many members the corporation has. If an LLC has a single member, it will be taxed as a sole proprietorship by default. If the LLC has multiple members, it will be taxed like a partnership by default.
The LLC operating agreement will determine how ownership of a company is split between multiple owners. It is important to note that the LLC could opt to be taxed like a corporation. In such a scenario, a member may be treated like an employee. This means that the company itself will withhold FICA and income taxes on behalf of that person. If a business chooses not to be treated as a corporate entity, profits will flow through to a member’s individual tax return.
This means that members will be responsible for paying income and other taxes on their own. Typically, estimated tax payments are remitted to the IRS on a quarterly basis. Members are paid by transferring money from the company’s bank account to their own bank account. It is also possible that members write checks to themselves from the company’s bank account and deposit it into their personal account.
Individuals who are looking to start a new company may want to do so with the help of a business law attorney. An attorney may be able to help draft an operating agreement or other important documents. Legal representatives may also provide insight into the tax treatment that sole proprietors, partnerships and corporate entities receive. This may enable a business owner to make an educated decision about how the company is structured.