How to File LLC Taxes in Michigan? (A Complete Guide)
After forming a Michigan LLC, you must keep in compliance with the state, and one way to do that is to pay taxes.
Understanding and completing the necessary tax filings can be a complex part of business operations.
To help you figure this out, we have gathered seasoned LLC professionals leveraging their decades of expertise in the business industry.
Drawing from official government resources, we've compiled a comprehensive guide on the various state and federal taxes your LLC is obligated to pay.
Quick Summary
- LLCs in Michigan are taxed as pass-through entities according to the number of members they have.
- All Michigan LLCs must comply with federal, state, and local taxes.
- All businesses in Michigan are subject to the Michigan Business Tax.
- Michigan LLCs must also comply with local income taxes, which may require filing and paying taxes with local municipalities.
How Are LLCs Taxed in Michigan?
LLCs in Michigan are taxed under the pass-through taxation system based on the number of members in the business.
This means the responsibility to file taxes flows through to members and managers who will file returns on their received income.
While a member-based filing status is one filing category, Michigan also expects LLCs to file federal, state, business, and local taxes.
"Before reporting taxes, ensure that you have an EIN as it's used for filing taxes with the federal, state, and local governments."
- US Small Business Administration
State Income Taxes for Michigan LLCs
The state tax filing status in Michigan varies depending on the LLC structure. Before Michigan starts to tax your LLC based on its structure, the IRS must approve its status.
The IRS also allows LLCs to elect themselves as a corporation, either S-corporation or C-corporation, for tax purposes.
The Michigan Department of Revenue honors this treatment and taxes LLCs accordingly.
Here's how Michigan LLCs are taxed at the state level.
1. Single-Member LLC
A single-member LLC files taxes as a disregarded entity, so the owner of the LLC is liable to file the return.
The LLC is taxed as a sole proprietorship if owned by a single member or as a branch owned by another company.
Each member must pay Michigan's individual income tax levied at a flat rate of 4.25%. You can use form MI-1040 to file [1].
2. Multi-Member LLC
An LLC in Michigan with two or more members is taxed like a partnership. The LLC must file a partnership return (Form 1065) and issue its members a personal income tax return form (Schedule K-1) [2].
Schedule K-1 reports each member receives income that flows through to the members, who will pay income taxes on their personal income tax return (Form 1040).
Read more about how is a multi-member LLC taxed.
3. LLCs taxed as S-corp
LLCs taxed as S-corp benefit from not being subjected to additional corporate income taxes, but it's still taxed as a pass-through entity.
Therefore, its individual members and shareholders pay federal taxes.
An LLC can request to be taxed as an S-corp by filing Form 2553 with the IRS.
Once approved, the LLC does not need to pay federal self-employment tax; however, each member must pay self-employment taxes on their salary.
4. LLCs taxed as C-corp
Besides an S-corp status, some LLCs choose to be treated and taxed as C-corps. You must submit Form 8832 with the IRS to file as a C-corp. The LLC is also liable to file Federal Form 1120 (U.S. Corporation Income Tax Return).
Unlike the other LLC structures, a C-corp is subject to double taxation, which means it gets taxed at the corporate and shareholder levels. The federal corporate income tax rate is levied at 21%.
Each C-corp is liable for Michigan's 6% Corporate Income Tax (CIT). The CIT payment is mandatory if your company's fiscal year gross receipts exceed $350,000 and its yearly tax liability exceeds $100 [3].
Businesses in Michigan that qualify for CIT must submit a quarterly report using Form 4913 or the MTO portal. Additionally, LLCs taxed as C-corps must obtain a sales tax license if they sell taxable goods or services.
Federal Taxes for Michigan LLCs
The IRS charges these taxes on Michigan LLCs:
1. Federal Self-employment Tax
If you profit from a Michigan LLC, you must pay self-employment tax. All managers and members who take earnings from the business are responsible for paying this LLC tax rate of 15.3%.
The Federal Insurance Contributions Act (FICA) oversees this tax that provides benefits like Medicare and Social Security, among others.
2. Federal Income Tax
An LLC in Michigan must also pay federal income taxes on any revenue you withdraw from the business. Your income, current tax rate, deductions, and filing status all dictate the income tax you pay.
Federal income tax is only charged on profits from the company after some deductions and allowances. It also includes operating costs, other deductions like healthcare, and retirement plans, in addition to your tax-free earnings.
Other Taxes
Other than the federal and state income taxes, a Michigan LLC is also subject to local and LLC business taxes:
1. Flow-Through Entity Tax
Multi-member LLCs and LLCs reporting as S-corps may elect to use the Michigan Flow-Through Entity (FTE) tax to pay taxes at the entity level rather than at an individual level.
Businesses that file under the FTE tax must pay tax at the individual rate of 4.05% on certain income for tax years beginning in 2024 [4].
Additionally, business owners are entitled to a refundable income tax credit equivalent to the amount that the business has previously paid.
Claiming tax credits may lower the overall amount of tax that the LLC pays. Members may file individual tax returns to claim their income tax credits.
FTE tax returns must be electronically filed with Form 5772 using the Michigan Treasury Online (MTO) portal.
2. Michigan Business Tax
All taxpayers in Michigan who report business income with yearly gross receipts of $350,000 or more are further subject to the Michigan Business Tax (MBT) [5].
MBT tax is determined by adding a business income tax of 4.95% on federal adjusted business income to a modified gross receipts tax of 0.8% [6].
MBT must be filed quarterly if your estimated tax liability for the year exceeds $800.
To help businesses with e-filing, Michigan imposes an e-file mandate for MBT and offers a search engine called Find An E-File Provider.
3. Sales and Use Tax
Michigan's separate sales and use taxes are typically collected at 6% [7]. Sales of fuels for home heating, natural or synthetic gas, and electricity for household consumption are charged a lower 4% sales tax.
Michigan sales tax is applied to tangible personal property sold within the state, while use tax is applied to all taxable items brought into the state from out-of-state businesses.
You can register to collect sales tax and other Michigan business taxes by submitting Form 518 or using the Michigan Treasury Online (MTO) website.
4. Local Michigan Taxes
Individuals who reside or work inside a city's boundaries in Michigan are liable for income taxes.
While some cities have higher rates, most cities charge 1% of residents and 0.5% of non-residents in taxes [8]. For instance, the income tax in Detroit is 1.2% for non-residents and 2.4% for locals.
You may also be required to pay other taxes to your local city or county government, like property taxes, if your LLC owns the property. We recommend contacting your local government to determine which local taxes apply to your LLC.
5. Michigan Employer Taxes
An LLC in Michigan with employees must file:
- Unemployment taxes: In Michigan, employers must contribute to the state's unemployment insurance on the first $9,500 paid to each employee [9]. The tax rate has been 2.7% since 2022. After two years, new employer rates are revised, considering the employer's history of benefit adjustments and taxable payroll.
- Workers compensation taxes: Michigan law mandates that businesses acquire workers' compensation insurance if they hire at least one employee who clocks in at least 25 hours weekly. You can get workers' compensation insurance from a private insurer or the assigned risk pool of the Compensation Advisory Organization of Michigan.
Employers are also responsible for withholding employee income taxes from their wages.
Related Articles:
- How to Open an LLC in Michigan
- Top LLC Formation Services in Michigan
- Premium Registered Agent Services in Michigan
Tax Filing Requirements
As a Michigan LLC, you must comply with various tax filing requirements at both the state and federal levels. Understanding these requirements is crucial to ensure your business remains in good standing and avoids penalties.
1. Annual Filing Requirements
Every Michigan LLC is required to file an annual statement with the Michigan Department of Licensing and Regulatory Affairs (LARA) by February 15th each year.
This statement must include essential information about the LLC, such as its name, address, and registered agent, as well as the names and addresses of its members.
The filing fee for the annual statement is $25.
Timely filing of this statement is important to maintain your LLC’s active status and avoid late fees or administrative dissolution.
Managing Your LLC’s Taxes
Managing your LLC’s taxes can be complex, but there are several steps you can take to ensure compliance with state and federal tax laws. Here are some tips to help you navigate the process:
1. Working with an Accountant
One of the most effective ways to manage your Michigan LLC’s taxes is to work with an experienced accountant or tax professional.
An accountant can assist you with preparing and filing tax returns, calculating taxes owed, and ensuring that you are taking advantage of all available tax deductions and credits.
They can also help you stay up-to-date with any changes in tax laws that may affect your business.
When choosing an accountant, look for someone who has experience working with LLCs and is familiar with Michigan tax laws.
A knowledgeable accountant can provide valuable insights and help you make informed decisions about your business’s financial health.
By partnering with a professional, you can focus on growing your business while ensuring that your tax obligations are met accurately and efficiently.
FAQs
Do LLCs in Michigan Pay Business Taxes?
Yes, LLCs in Michigan pay business taxes, including Michigan Business Tax, sales and use tax, Flow-Through Entity Tax, and other local business taxes.
Do I Need to File a Michigan State Tax Return for My LLC?
Yes, you need to file a Michigan state tax return for your LLC if you want to continue doing business in Michigan.
Do Foreign LLCs in Michigan Need to Pay Michigan Taxes?
Yes, foreign LLCs in Michigan Need to pay Michigan taxes, including local taxes applicable to your LLC.
Do You Need Help Filing Your Michigan LLC Taxes?
Filing your Michigan LLC taxes is necessary to maintain good standing with the state. The process can be daunting since several taxes must be filed accurately and on time. That's why using accounting software like QuickBooks will help streamline the process.
QuickBooks provides a user-friendly interface that simplifies your tax management and annual reporting needs.
Using QuickBooks intuitive resources, you actively ensure that your Michigan LLC tax records are updated for accurate, easy, and on-time filings.
