Using Your EA CPE to Advise Taxpayers With LLCs

Taxpayers with LLCs are ideal prospective clients for enrolled agents. There are many tax matters that these business owners fail to correctly address unless they obtain professional assistance. Marketing yourself as a trusted source of tax advice to owners of LLCs is a way to grow your business for providing many services to these individuals.

An LLC is a business structure created with the agency of a state. They are popular because the owners have limited liability that’s similar to a corporation. However, an LLC is not a recognized entity of the federal government.

The IRS automatically treats an LLC as a pass-through entity for tax purposes. That’s why your knowledge from enrolled agent continuing education becomes valuable. Understanding the tax treatment for LLCs permits the owners to conduct some planning.

LLC owners may elect tax status that’s different than the IRS default choice. That is, any LLC can obtain tax status as a corporation. Otherwise, the IRS taxes an LLC with only one member like a proprietorship and an LLC with multiple members as a partnership. The differential tax reporting is all covered in your enrolled agent course.

A proprietor incurs regular income tax plus self-employment tax on business profit. The same tax assessment is incurred on a partner’s share of profit. But you can show LLC owners how corporations are taxed differently. Your EA CPE gives you the details to accurately convey this situation. The self-employment tax doesn’t apply to corporate profits and the substitute payment of Social Security and Medicare taxes is likely lower.

You can help LLC owners who want to incur tax as a corporation file Form 8832 with the IRS. In order to tax the LLC as an S corporation, Form 2553 is filed. You have to act quickly because the election is normally effective no more than 75 days prior to filing a form. However, the IRS can grant an initial classification election more than 75 days after the LLC is formed.

This extension is not available for a change in classification. But you can always advise an LLC about converting to a corporation from its default status as a pass-through entity. Before suggesting the change, you have to determine the potential tax savings and illustrate the operational process for the LLC to follow as a corporation.

In many cases, tax status as a corporation is what LLC owners were expecting when they created their entities. After helping them achieve this, you gain the opportunity to utilize your tax CPE for conducting their ongoing tax return preparation.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.