Series LLC Tax Treatment: How the IRS Sees Your Series Entities

The Series LLC comes with so many awesome features for real estate investors that some of us think it's darn-near magical. While it's certainly a powerful structure with plenty of useful applications, even the Series LLC is forced to acknowledge a power greater than itself.

No, we aren't talking about you. We're talking, of course, about the Taxman.

Admittedly, this isn't the sexiest topic in the world, but it's essential knowledge for responsible members of a Series LLC. We'll make this as painless as possible. Below, we'll go over how Uncle Sam views the series within your Series LLC and what you have to do to stay on his good side.

How Uncle Sam Treats the Series LLC

For tax purposes, the Internal Revenue Service treats the Series LLC very similarly to a traditional LLC. The major question I get about this topic is whether each individual series is taxed separately.

For now, the IRS regards the Series LLC as one big entity. This means, that each series within the structure is not considered a separate company and therefore does not require separate returns. Of course, you will have to declare any income you've gained from your Series LLC, and we'll elaborate on that below.

It's important to note that the Series LLC isn't without its tax advantages. Its status as a pass-through entity will save you money and spare you from excessive corporate taxes that you would pay for other types of companies.

How To File Taxes for Your Series LLC

Your operating company (also called the "shell" or "master" company) is what will appear on your tax return. Provided the series that made money for the relevant tax year share common ownership, you can take advantage of pass-through taxation and simply report all income on the Schedule E portion of your personal tax return.

There are ways you could file separate returns for each cell, but this is typically not recommended for Series LLC owners whose income is mostly coming from passive investments like real estate. We do, however, recommend that Series LLC owners keep thorough, separate records for their series to ensure liability protection and simplify the tax process. This applies regardless of how you choose to file.

How to Ensure You're Filing Properly: Get Help

Please keep in mind that this information about Series LLC tax treatment relates only to taxation at the federal level. State law can change more frequently, and your state may implement or already have state tax requirements specific to the Series LLC.

This is one of many reasons that smart Series LLC owners use qualified CPAs and attorneys to help them handle their taxes. Our experts at Royal Legal Solutions stay on top of the most up-to-date information about Series LLCs and tax law. If you still have questions about how to handle the taxes for your series LLC, you're not alone. We're here to help.

Don't wait until the Taxman comes knocking! Contact us to take advantage of your personalized consultation today.

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Last Updated: 
March 28, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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