Question

An LLC has multiple owners, an individual and a grantor trust. All of the expenses and income flow through the individual.

1) Can this be treated as a disregarded entity? Why?

2) If not, what tax forms does the LLC use? Does the trust need to file anything?

Answer 1

A Limited Liability Company (LLC) is business structure that provides the limited liability protection features of a corporation and the tax efficiencies and operational flexibility of a partnership.

Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are "passed through" the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.

The owners of an LLC have no personal liability for the obligations of the LLC. An LLC is the entity of choice for a businesses seeking to flow through losses to its investors because an LLC offers complete liability protection to all its members.

1) Multi-Member LLC is abbreviated MMLLC and is the term used for an LLC that has 2 or more Members (owners). Multi-Member LLC can have and the LLC Members can be individual people, or they can be companies (like another Corporation or LLC).

So the above LLC can not be disregarded as an entity.

2)LLC need to follow federal tax forms as the members are required to pay the tax because the LLC can not.

For federal tax purposes, the IRS taxes a Multi-Member LLC like a Partnership.

For this type of taxation, the Multi-Member LLC will file Form 1065 (“Partnership Return”) with the IRS. This is an informational return. Also, whoever prepares the taxes for the Multi-Member LLC will also issue K-1s to the LLC Members. The K-1 then become a part of each Member’s personal 1040 personal income return. The K-1 reports the income (or loss) that each Member made (or lost) from the LLC

Or it can be taxed as

Legally, your LLC is not a Partnership (it’s just treated this way for tax purposes). You LLC is a legal business entity – (separate from yourself) that is created by state law. The IRS does not have a specific tax classification for LLCs, so instead, the IRS taxes the Multi-Member LLC just like a Partnership (since there are multiple owners).

If instead, you’d like your Multi-Member LLC to be taxed as an S-Corp, you can complete Form 2553 and submit this to the IRS. Alternatively, you can also have your LLC taxed as a C-Corp by completing Form 8832 and submitting it to the IRS. Eit