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Business Formation

LLC partnership

Can a partnership LLC have retained earnings and if so how is it taxed? Also, i know that an LLC is pass thru taxation so does that mean that the 3 owners will pay taxes on their percentage even if its reinvested or part of retained earnings?

Answer:

If we are going to use exact terminology, an LLC taxed for federal income tax purposes cannot have “retained earnings.” Retained earnings is a term used in the context of a C corporation or S corporation.

You are correct that an LLC is a pass-through entity (assuming that it’s taxed for federal income tax purposes as a disregarded entity, partnership, or S corporation). If the LLC is taxed for federal income tax purposes as a pass-through entity, then, yes, owners will pay tax on their percentage, regardless of whether it’s reinvested, left untouched in members’ capital, or distributed to owners.

Feel free to contact me if you wish to engage me to help with anything. Even though I practice as a CPA in Texas, I have clients in other states, as I do multi-state returns.

Answer Provided by: personimage Adam Dickreiter

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