What is the difference between LP, LLC and LLP In terms of both tax and financial accounting?
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Depends on state law
LP generally refers to a Limited Partnership.
LLC generally refers to a Limited Liability Company.
LLP generally refers to a Limited Liability Partnership.
For federal tax purposes, an LP must have at least one general partner who is liable for partnership debts, and one limited partner who is not liable for partnership debts.
An LLC has no general partners. All members receive a certain degree of limited liability protection under state law.
An LLP is generally used in certain states that do not allow professionals to be organized as corporations or LLCs. For example, doctors, lawyers, accountants, etc. may be limited under state law and can only organize as sole proprietors, general partnerships, or limited liability partnerships.
For tax and accounting purposes, it would also depend on whether there was an election to be taxed as a corporation or to remain a sole proprietorship or partnership.
The degree of liability in an LLP may be less than in an LLC, under state law.
TTB, pages 20-11 and 20-12 also has info in this subject. -
Is this correct?
LP and LLC need not pay corporate taxes. LLP need to pay corporation taxes.
I am very interested in accounting, though I am not accountantComment
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Taxation of LLP-LLC
You need to verify with the STATE Tax Dept. for any state taxes that may be owed.
This differs from state to state.
Federal Taxation:
LLP: This is a partnership and federal taxes are paid by the partners on their personal
tax returns:
LLC: This all depends on how the LLC elects to report. If it is a single member LLC
then it can elect, with the IRS, to report as a (1: sole proprietor, then a sched. C
would be filed with the 1040.
(2: It can elect to file as a partnership, if more than 1 member, and file a form 1065,
partnership return. Here, again, the profits or losses will pass through to the partners
and reported on their personal returns.
(3: It can elect to file as a corporation, either a C Corp. or S corp.
If a C Corp. is elected, then a form 1120 would be filed and the corporation income
tax would be paid, to the IRS.
If S Corp. is elected then the corp. would file an 1120S and the profits or losses
would pass through to the members and reported on the respective personal income
tax returns.Comment
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Many thanks, BK and BL.
My understanding:
Each member of LP and LLC uses the individual tax form 1040 to report to IRS, so they don't need to pay federal income taxes, but they may still need to pay state income taxes.
Am I right?Comment
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are you thinking of forming one of these entities?
if so, find a reputable tax professional in your area and pay him/her for an hour of their time to get all (ok, most) of your questions answered. taxation of various entity types is very intensive and full of nuances. those of us on this board who do this type of work for a living have spent many years learning these facts, and continuously update our knowledge through continuing education. attempting to learn "enough to get by" by asking questions on a message board is a disaster waiting to happen.
i'm not trying to be cruel, i just don't want to see you and your potential partners ensnared in a web of problems before you even get off the ground.
JoshInNCComment
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