How to File LLC Taxes in Arkansas? (Step by Step Guide)
As an Arkansas business owner, you must understand the tax filing requirements to submit the correct tax forms and keep your business in check with the Secretary of State.
To help you get started, we sought expert help from our team of licensed business advisors who have been in the LLC industry for over two decades.
We reviewed the Arkansas Secretary of State's website for the correct LLC taxes information for four weeks.
Here's a detailed guide on filing taxes for your Arkansas LLC.
- All limited liability companies in Arkansas must pay an annual franchise tax report of $150.
- If your LLC has employees, you must obtain a federal tax ID and pay taxes as the state employer.
- All businesses offering commercial services and goods must pay a sales and use tax of 6.5% regularly to the Department of Finance and Administration.
How Are LLCs Taxed in Arkansas?
LLCs in Arkansas are taxed as pass-through entities based on the number of LLC members. The income flows to the managers and members who'll file personal returns on their received revenue.
However, depending on certain aspects, the Arkansas tax department also charges other federal, corporate, and income taxes for LLCs.
State Taxes for Arkansas LLCs
In Arkansas, the state taxes for limited liability companies vary depending on the structure of the LLC. The state also allows LLCs to have an "elective status" where they choose to be taxed as S or C-corporations.
Here's a description of how different LLC structures are taxed in Arkansas.
1. Single-Member LLC
In Arkansas, a single-member LLC (an LLC with one individual) is treated like a sole proprietorship by default.
This means that the single-member LLC is a pass-through entity, and the profit/loss passes down to the owner, who'll file a personal income return with the Internal Revenue Service (IRS).
2. Multi-Member LLC
A multi-member LLC has more than one shareholder and is treated as a partnership for tax purposes.
The distributive portion of earnings for each owner is reported on the K-1s. Furthermore, the K-1 income "flows through" to the owners.
Each owner pays income taxes on their personal income tax return (Form 1040).
Learn more about how is a multi-member LLC taxed.
3. LLCs Taxed as S-corp
LLCs set as S-Corp companies are typically exempt from paying additional federal income taxes.
However, this entity's taxable income passes through to the individual owners, and each shareholder is liable for paying federal taxes.
To have your LLC taxed as an S-Corp, you must submit Form AR1103 and a federal form.
This entity type isn't required to pay the state's corporate income tax. However, it must pay the corporation franchise tax.
Read our article for more information on why LLCs electing to be taxed as an S Corps.
4. LLCs Taxed as C-corp
In contrast to the normal LLC pass-through tax scenario, the business must submit a separate tax return when an LLC chooses to be treated as a corporation.
C-corps must pay the 21% federal corporate income tax, the annual franchise tax report for Arkansas, and the corporate income tax for Arkansas.
The state of Arkansas taxes corporate income is calculated based on a limited range of marginal rates (typically 22%) applied to net income.
The Arkansas corporate tax is paid to the state's Department of Finance and Administration (DFA).
To pay the tax, use the state's company income tax return Form AR1000-CT .
Federal Taxes for Arkansas LLCs
The IRS levies the following federal taxes on Arkansas LLCs:
1. Federal Income Taxes
Any revenues you withdraw from your Arkansas LLC are subject to standard federal income taxes.
Your income, the tax bracket you are now in, your deductions, and your filing status all affect how much income tax you pay.
Only the earnings you withdraw from the firm, minus certain deductions and exemptions, are subject to federal tax.
Your tax-free sum, company expenditures, and other deductions for medical and some pension plans are also included.
2. Federal Self-Employment Tax
As the LLC owner, you are responsible for paying self-employment tax. Self-employment tax is also due to all members or managers withdrawing money from the LLC.
The Federal Insurance Contributions Act (FICA) administers this levy and is responsible for paying for Social Security, Medicare, and other benefits. The self-employment tax rate for Arkansas is 15.3%.
Before you file any federal taxes, you must apply for a Federal Employer Identification Number from the IRS. You'll provide this unique number on all your tax forms applications.
Read our article to learn how to reduce self-employment tax.
Here are other taxes that Arkansas LLCs must pay:
1. Annual Franchise Tax
An annual franchise tax is what the Arkansas state charges businesses for transacting there.
You must submit an Arkansas franchise tax report for your limited liability company to the state. The report relates to the state's franchise tax, which applies to all LLCs. The $150 tax is due to the Secretary of State, and you can submit it online or by mail.
When filing the franchise report, you must provide the following tax information on the paper forms:
- LLC name
- Arkansas Registered agent information
- Business ID number or file number
The filing due date for the franchise tax report and $150 tax payment is May 1; any late reporting is subject to late fees and other penalties.
2. Sales and Use Taxes
You must gather and pay sales tax if your LLC sells items to clients in Arkansas.
This implies that you must register with the Department of Finance and Administration and submit regular sales tax payments for products supplied. You can submit Form AR-1R by mail or file it online.
In Arkansas, a single, consistent LLC tax rate of 6.5% applies to the whole state. However, the total sales tax in some regions of the state may be as high as 11.5% due to municipal taxes that local towns and counties may have imposed on top of the state's sales tax.
"LLCs will receive a sales tax permit after registration and are mandated to send sales tax returns to the DFA regularly"
- Robert Roseman, Business Attorney
3. State Employer Taxes
Employer taxes must be paid if your LLC employs workers. You must deduct and pay employee income taxes to the DFA.
Start by submitting Form AR-1R, the Combined Business Tax Registration Form, to the DFA to register your company .
Following registration, you will have a monthly filing deadline for withholding taxes. For this, you can utilize Form 941M. Additionally, each year, you must reconcile the tax withholding made by your LLC using Form ARW-3.
You can use the DFA website to complete online filings.
4. Unemployment Insurance Taxes
You'll likely have to register to pay the Arkansas state unemployment insurance (UI) taxes of 0.2%.
The Department of Workforce Services (DWS) in Arkansas is in charge of collecting these taxes. You can use Form DWS-ARK-201 or apply online for these taxes.
For each quarter after the initial registration, you'll use Forms DWS-ARK-209B and DWS-ARK-209C to submit wages and collect UI taxes.
- How to Form an LLC in Arkansas
- Premium LLC Formation Services in Arkansas
- Look Up an LLC in Arkansas
What is Tax Deductible for an LLC in Arkansas?
The tax deductible for an LLC in Arkansas includes child care credit, post-secondary tuition deduction, dependent care credit, political contributions, and adoption tax credit.
The following expenses also have tax credits in Arkansas:
- Sales and use tax exemptions for machinery bought for a new manufacturing plant or to replace old equipment.
- The purchase of machinery that's used solely for recycling purposes.
- Companies who offer child care to their employees can get 3.9% of the total yearly wages of the daycare facility's staff as a credit or a one-time $5,000 state income tax credit for the first year that the company offers child care to its workers.
- 30% state income tax credit for tuition reimbursements for educational expenses that eligible companies offer to their employees.
- 25% state income tax credit for verified rehabilitation of eligible revenue and non-income producing assets.
Do I Need to File an Arkansas Annual Franchise Tax?
Yes, you need to file an Arkansas annual franchise tax to fulfill the state's requirements and keep your business in the right standing.
Do Sole Proprietors Pay Annual Franchise Tax in Arkansas?
No, sole proprietors do not pay annual franchise tax in Arkansas. The owner receives income from this business structure, who'll then pay income taxes on the revenue.
What Happens if You Don't Pay Franchise Tax in Arkansas?
If you don't pay franchise tax in Arkansas, your LLC will be revoked, and you cannot conduct transactions in the state.
Do You Need Help Filing Your Arkansas LLC Taxes?
Since business taxes are unavoidable, your LLC will have to pay several taxes to the state and federal authorities. If the process and the requirements seem too overwhelming, consider utilizing QuickBooks to streamline your tax management.
With QuickBooks, you gain access to an efficient and user-friendly system that simplifies crucial ongoing annual reporting and state tax filing obligations for LLCs in Arkansas.
By leveraging QuickBooks' intuitive features, you can ensure that all your LLC taxes are organized and filed promptly, without the risk of mistakes.