How to File Business Taxes for an LLC? (Complete Guide)
Filing business taxes for a Limited Liability Company (LLC) is based on the structure and organization of the company. LLCs can file as sole proprietorships, partnerships, or corporations.
Each business category has different tax classifications and requirements.
With years of experience as a business consultant and a thorough investigation into the subject, I have delved into the intricacies of filing business taxes for an LLC.
I’ve also consulted with our legal advisors and lawyers with many years of experience in this field to provide you with all the necessary information on this topic.
Quick Summary
- To file business taxes for a limited liability company, identify the structure of your company whether it is a single-member LLC, a partnership, or a corporation, and file for the corresponding tax.
- Other tax obligations that LLCs are required to pay are self-employment taxes, estimated quarterly taxes, and state income taxes.
- For a corporation, you have the option to be taxed as a C or S corporation.
How To File LLC Taxes by LLC Type
To file LLC taxes by LLC type, you need to identify the classification of your company.
Generally speaking, all LLCs need to file an LLC-12 form. This is a document that identifies your business as either sole owner, partnership, or corporation (S corporation or C corporation).
First-time filers need to go through a checklist, although you have to keep in mind that these requirements may vary depending on state taxes where your business is registered.
The next step is to file the appropriate LLC tax forms per the type of entity you designated on the LLC-12 form. Consult with a tax professional to address your concerns.
Let's get into more detail about how LLC owners pay taxes depending on the type of their limited liability company.
1. Single-Member LLCs
As a single-member LLC, the entity is taxed like a sole proprietorship in that all income flows directly to the solitary member or owner. The member is required to report any income or net profit, expenses, or loss on their personal income tax return.
This can be accomplished by filing their tax using the US Internal Revenue Service (IRS) form Schedule C (form 1040). The deadline for filing is April 15th.
In taxation, a single-member LLC is also referred to as a disregarded entity.
You will also have to complete an Internal Revenue Service Schedule C as a single-member LLC owner, which is the same form sole proprietors use when filing their taxes.
If you want to minimize your self-employment tax burden, opt for electing corporate taxation for the disregarded entity.
2. Multiple Member LLCs
Some limited liability companies which have two or more members pay income tax like partnerships.
With multiple-member LLCs, income flows directly to the members in the same way as a single-member company.
The multi-member company must:
- Report all income and expenses using the US IRS form 1065.
- The LLC must then issue Schedule K-1 forms to all the members of the entity to reflect their share of the company’s profits.
- Each individual member is required to report their share of the profit or loss on Schedule E (form 1040) of their personal tax returns.
The deadline for filing Form 1065 along with your personal tax returns is March 15, whereas Schedule E is due before April 15.
In addition to your personal tax return, multi-member LLC must submit form K-1.
Form K-1 is a partner's personal tax return. It's due on the same date as your individual income tax return and applies to each LLC member. It should be included in Schedule E.
Keep in mind that there could be additional due dates for each partner's tax return, including extensions.
Partnerships also face limitations when it comes to the deductible amount covering Social Security and Medicare taxes.
3. Filing Taxes as a Corporation
LLCs are offered flexibility in filing taxes as a corporation. A company may choose to be taxed either as an S corp or a C corp.
If you are considering incorporation with your business partner(s), be sure that everyone agrees on the type of corporate income tax structure before you file.
Consult with a tax professional to determine if your limited liability company will benefit more as a C corp or S corp.
The structure should be specified in your LLC Operating Agreement.
LLCs Taxed as C Corporations
An LLC filing tax as a C corp can be accomplished by submitting form 8832 (Entity Classification Election) with the IRS. An LLC taxed with a C corp status must file corporate income taxes as well as personal income taxes for the members.
Corporate income or business tax returns must be filed on Form 1120 of the IRS, while individual income tax returns are filed using Form 1040.
Form 1120 is due before March 15 and the deadline for Form 1040 is April 15.
We recommend hiring an appropriate state tax agency to handle these legal matters.
LLCs Taxed as S Corporations
An LLC opting to be taxed as an S corp must file an IRS form 2553 (Election by a Small Business Corporation). The purpose of this is to avoid being subjected to federal corporate income tax.
The LLC must first file form 1120-S with the IRS to declare all business income and losses. It must then issue K-1 forms to every member and report that income on their individual tax returns using Schedule E.
The Same deadlines apply, March 15 for Form 1120-S, and April 15 for Schedule E.
LLC S corporations are pass-through entities, like partnerships or sole proprietorships.
As a result, they pay tax on their net income and losses to the individual owners as if those profits were personal.
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What Other Taxes Do LLCs Pay?
Other taxes that LLCs pay include self-employment tax, state income tax, and quarterly tax.
1. Self-Employment Taxes
A limited liability company is not a taxable entity but the members have to pay self-employment tax. As a pass-through organization, the members report and pay taxes on their personal returns.
2. Estimated Quarterly Taxes
If a limited liability company expects to earn more than $1,000 during the year, it must make quarterly estimated tax payments on pass-through income. Estimated taxes are reported using form 1040-ES (Estimated Tax for Individuals).
Estimated tax payments are deducted from the annual tax due.
3. State Income Taxes
Some states require LLCs to pay state income tax based on the company’s annual profits. Verify with local tax authorities to make sure your LLC complies with the state’s requirements and deadlines.
How To Change Your Tax Classification?
To change your tax classification, you can file IRS form 8832 (Entity Classification Election) [1].
The IRS classifies LLCs based on its organizational structure and imposes taxes by default.
An LLC categorized as a corporation may choose to pay taxes either as a C corp or an S corp.
How to File LLC Taxes - Choose Your State:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
FAQs
Is LLC Taxed Quarterly?
LLCs can be taxed quarterly if the entity is expected to earn more than $1000 during the year. The enterprise must submit form 1040 ES to the Internal Revenue Service (IRS).
What Can I Write Off With an LLC?
You can write off business expenses including travel, supplies, and equipment costs, as well as personal expenditures such as home mortgage interest or property taxes.
Does LLC Pay Federal Income Tax?
An LLC does not pay federal income tax because it’s a pass-through entity. The members pay personal income taxes instead.
How Much Money Does an LLC Have to Make to File Taxes?
The amount an LLC has to make to file taxes is based on the type of entity. For a sole proprietorship, income exceeding $400 has to be filed. On the other hand, partnerships and corporations pay tax regardless of the profit.
What if My LLC Has No Income?
If your LLC has no income, the company's designation will determine if you have to pay taxes. A sole proprietorship or a partnership is not required to file tax returns, while a corporation has to file income taxes despite having no income.
Can I File Taxes for My LLC Myself, or Should I Seek Professional Assistance?
You can file taxes for your LLC yourself but seeking professional assistance would expedite the process and ensure all aspects are handled legally.
Filing Business Taxes for an LLC
Filing business taxes for an LLC would depend on how the company is structured. By default, the IRS may classify the entity as a sole proprietor LLC or a partnership company, meaning it need not pay federal income taxes.
Members of the organization have the option to select the tax classification of the LLC based on how it would benefit the company.
Once the tax option has been established, file the appropriate forms to conform with state laws and legal requirements.
You can read ‘How LLCs are Taxed’ to understand the LLC taxation process better.
References:
- https://www.irs.gov/forms-pubs/about-form-8832
