Taxation of LPs and LLCs: Variances Among States Pose Traps for the Unwary

Two of the most popular business structures for small business owners are limited liability companies
(LLCs) and limited partnerships (LPs). These business entities offer a host of practical advantages. Chief among them is their federal tax treatment, which allows income to “pass through” to the owners. This reduces the risk of double taxation faced by C corporations.

But the state tax treatment of LLCs and LPs is more complicated. Each jurisdiction requires a careful review of whether or not it imposes entity level taxes on LLCs or LPs. Several states also have unique withholding or composite return requirements.

This 50-state chart provides a snapshot of each jurisdiction’s tax treatment of LLCs and LPs.