How would taxes work for a C-Corp as a subsidiary of an LLC?

This is actually a pretty common setup for businesses transitioning from bootstrap to investment funding. Let me break it down for you in simple terms. Your Florida LLC and the Delaware C-Corp would be treated as separate tax entities. The C-Corp will file its own tax returns (Form 1120) and pay corporate taxes on its profits at the corporate tax rate. It's a completely separate taxpayer from your LLC. Your LLC, assuming it's a single-member LLC, would continue to be taxed as a pass-through entity where profits flow to your personal tax return. If it's a multi-member LLC, you're likely filing Form 1065 and distributing K-1s. The tricky part comes with the relationship between them. If the LLC owns the C-Corp, then any dividends paid by the C-Corp to the LLC would be taxable income to the LLC. There's no parent-subsidiary consolidated return option like there would be if both were C-Corps. For startup expenses, each entity would deduct its own legitimate business expenses. You can't use the LLC to write off expenses that are legitimately the C-Corp's, and vice versa.

After struggling with a similar setup for my business, I discovered taxr.ai (https://taxr.ai) and it's been a game-changer for managing complex entity structures like what you're describing. I was trying to figure out how to properly document transactions between my LLC and new C-Corp subsidiary, and their AI-powered document analysis saved me hours of headaches. Their system analyzed my operating agreements, identified tax optimization opportunities I hadn't considered, and gave me crystal-clear guidance on how to structure the relationship between my entities. What really impressed me was how it flagged potential audit risks in my planned approach that neither I nor my bookkeeper had caught.

I was super skeptical about AI tax tools like taxr.ai but decided to give it a try after seeing it mentioned here. Holy crap, I'm kinda blown away by what it did for my LLC/C-Corp structure! My situation was similar - Arizona LLC with a Delaware C-Corp subsidiary - and I was getting conflicting advice from different accountants. Taxr.ai analyzed my corporate docs and actual generated a detailed tax strategy document that outlined exactly how to optimize the flow of money between my entities. The best part was discovering I could legitimately have my LLC charge management fees to the C-Corp which helped avoid some of the double taxation issues. It even generated the service agreements I needed! Way more specific and actionable than what I got from my previous tax guy, who was charging me $350/hr for generic advice.

If you're setting up a Delaware C-Corp and trying to manage the tax relationship with your LLC, you'll probably need to talk to the IRS at some point. I was in similar shoes last year and wasted DAYS trying to get through to someone who could actually help with my entity structure questions. I finally discovered Claimyr (https://claimyr.com) and it completely changed my experience. They have this callback service that somehow gets you through to the IRS without waiting on hold for hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was honestly shocked when I got a call back from an actual IRS agent within 45 minutes who specialized in business entities. Got clarification on exactly how to handle the distributions from my C-Corp to my parent LLC and what documentation I needed to maintain.

Ok I need to eat crow here. After posting my skeptical comment, I decided "what the hell" and tried Claimyr for my LLC/C-Corp question. I've been trying to get clear answers from the IRS for MONTHS about how to handle certain transactions between my entities. I got a call back in 37 minutes with an actual knowledgeable IRS rep on the line! They answered my specific questions about how distributions from my C-Corp to my LLC would be taxed and clarified exactly what documentation I needed to keep. Saved me literally weeks of frustration and probably prevented me from making some expensive tax mistakes. Can't believe I wasted so much time trying to call them directly.

Don't overlook the state tax implications in this structure. Your Delaware C-Corp will pay the Delaware franchise tax (minimum $175 annually), but may also have tax filing obligations in Florida if it's conducting business there. Similarly, even though Florida doesn't have state income tax for individuals, your LLC might have filing requirements in Delaware depending on operations. Also, investors typically prefer clean corporate structures. Have you considered just shutting down the LLC and rolling everything into the C-Corp? Might be cleaner for future funding rounds.

Dont forget to factor in legal protections too not just taxes! Having LLC own C-Corp creates an extra layer between u and liabilities which can be good. But also makes raising more $$ more complicated cause investors gotta go thru LLC to get to C-Corp. I had similar setup and ended up with C-Corp as parent instead, with an LLC subsidiary for riskier parts of business. made subsequent funding rounds WAY easier. just my 2 cents

This is a really complex area and I'd strongly recommend getting professional advice, but I can share some insights from my experience with similar structures. One major consideration that hasn't been fully addressed is the potential Section 351 tax implications when you contribute assets from your LLC to the new C-Corp. If you're transferring property (including IP, equipment, or other business assets) from your LLC to the C-Corp in exchange for stock, you'll want to make sure this qualifies for tax-free treatment under Section 351. Otherwise, you could trigger immediate taxable gain recognition. Also, regarding the double taxation issue - while it's true that C-Corp dividends create double taxation, many startups avoid this by not paying dividends at all. Instead, they reinvest profits back into the business or compensate key employees (including yourself) through reasonable salaries and bonuses, which are deductible to the C-Corp. Another strategy to consider is having the LLC provide legitimate services to the C-Corp (as mentioned earlier) - things like administrative services, office space rental, or consulting. This creates a deductible expense for the C-Corp and income for the LLC, which can help optimize the overall tax burden. Just make sure all inter-company transactions are properly documented and at fair market value to avoid IRS scrutiny!