Professional Issues and Service Management Practice Test

LLCs are usually treated as pass-through entities for federal taxes, so the business itself doesn’t pay income tax. Instead, profits pass to the owners and are reported on their personal tax returns. When owners actively run the LLC, their share of the net income is subject to self-employment taxes (Social Security and Medicare). This is why self-employment taxes are the expected tax obligation for LLC owners in the typical setup. Sales taxes aren’t paid by the owners on the profits themselves; they’re collected by the business on taxable sales and remitted to the state. Corporate taxes would apply only if the LLC elects to be taxed as a corporation, which isn’t the default. The idea that no taxes are due doesn’t fit the standard reality unless there’s no net income.