Question

Explain the similarities and differences, if any, with regard to the tax treatment of LLCs and LLPs.

Answer 1

Generally, both the LLC and LLP are fundamentally forms of partnerships and as such will be subject to pass-through taxation meaning that neither the LLC nor LLP pays taxes at the entity level. All income, or losses, is attributed to the individual partners to be reported on their individual personal tax returns. The essential difference between the two entities is that when organizing the LLC, the members may choose to forego the pass-through taxation treatment and have the LLC taxed as if it were a corporation.