Q: I just opened a business and formed it as a limited liability company under my state’s laws. For federal tax purposes, how do I classify my LLC?
A: An LLC may be classified for federal tax purposes as a sole proprietorship, a partnership, or a corporation. If the LLC has only one owner, the LLC will automatically be treated as a sole proprietorship unless another election is made by the owner. On the other hand, if the LLC has two or more owners, it will be classified as a partnership unless an election is made.
Q: I am a sole proprietor. Must I have a tax identification number?
A: The sole proprietor is the only classification of business entity that does not need a tax ID number. However, if the sole proprietor has employees or a pension plan he or she must report, it must have a taxpayer identification number. In the case of the proprietor having no employees or reportable pension obligation, the proprietor’s number is his or her social security number.
Q: My father just passed away. Will I have to pay estate taxes on the value of the estate?
A: The estate is responsible for the estate taxes due on the gross value of the estate. This year, there is no estate tax. Next year (in 2011), the gross estate exemption returns to $1,000,000.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors