How to File LLC Taxes in Montana? (An Ultimate Guide)
One of the most important requirements for compliance with the Montana Department of Revenue is the timely and proper filing of your LLC state and federal taxes.
To help you navigate the daunting filing process, we consulted our trained team of business consultants, who have over eleven years of experience in the LLC industry.
As Venture Smarter, we reviewed Montana's official tax website for four weeks to obtain the accurate LLC tax requirements.
Here’s a detailed guide on handling LLC taxes in Montana.
Quick Summary
- To file LLC taxes in Montana, understand both state and federal tax obligations, including pass-through taxation and specific forms.
- Montana LLCs face a federal self-employment tax of 15.3%.
- The corporate income tax rate for LLCs in Montana is 6.75%, and benefit from no state sales tax.
- Drawing from experience, given the complexity of tax laws, consulting with a tax professional is advisable for LLC owners in Montana.
How Are LLCs Taxed in Montana?
Based on our experience, LLCs in Montana are taxed as pass-through entities by default.
Montana LLCs must pay the federal self-employment tax of 15.3% (2.9% for Medicare and 12.4% for Social Security), state income, industry, employer-specific, and local taxes.
By default, a single-member LLC is taxed as a sole proprietorship, but a multi-member LLC is taxed as a partnership.
On a federal level, you would file:
- Form 1040 (typically Schedule C, but some SMLLCs file C-EZ, E, or F) for a single-member LLC [1].
- Form 1065 for a Multi-Member LLC [2].
For your Montana state tax returns, you may include your LLC's revenue on your personal tax return.
From our experience owning LLCs in Montana, multi-member LLCs with non-Montana owners can also submit a composite tax return, allowing the LLC to pay taxes on behalf of its members.
As Venture Smarter, we also suggest consulting with a tax professional for LLC owners in Montana.
To be eligible, the LLC member must:
- Be non-residents, domestic or foreign corporations, or tax-exempt enterprises.
- Have no other means of income in Montana.
- Give the entity a documented power of attorney so that the LLC can file and act on behalf of the member.
State Taxes for Montana LLCs
Let's look at the state taxes for different LLC structures in Montana.
1. Single-Member LLCs
The Internal Revenue Service (IRS) considers all single-member LLCs in Montana to be Disregarded Entities for tax purposes. This implies that the IRS does not anticipate the LLC filing its own federal income tax return.
Instead, the single-member LLC's owner submits the form (and pays the federal income taxes).
Who owns the LLC determines how the LLC pays federal income tax:
- If one individual owns the LLC, it is taxed as a sole proprietorship.
- If another firm owns the LLC, it is taxed as a division/branch of the parent company.
2. Multi-Member LLCs
If a Montana LLC has multiple owners, the LLC is taxed as a partnership.
Our company filed a 1065 Partnership Return and provided the LLC owners with a Schedule K-1.
The K-1s show the distributive portion of profits for each owner. Furthermore, the K-1 income "flows through" to the owners.
Each owner will then pay income taxes on their personal income tax return (Form 1040).
3. LLCs Taxed as S-Corp
LLCs electing to be taxed as S-corporations, like LLCs with default filing status, are considered pass-through entities.
First, to file your LLC taxes as an S-corporation, ensure that you fulfill the IRS's S-corp standards. Then, consult with your attorney to ensure that changing your LLC's default filing status is smart, and file Form 2553 with the IRS [3].
S-corps must file Form 1120-S with the IRS [4].
"S-corp LLCs can make distributions to its members that are not liable to the 15.3% self-employment tax."
- Delina Yasmeh, J.D./Tax LL.M, Distinguished Expert in Mergers & Acquisitions
4. LLCs Taxed as C-Corp
C-corp is the regular tax filing status for entities. Any firm with C-corporation filing status must pay taxes twice: once on the business's corporate income tax and again on the owner's personal tax returns.
C-corps appeal more to investors than other file statuses because they are eligible for bigger tax deductions.
If you (and your CPA) believe this will benefit your business, we recommend changing your LLC's default filing status to C-corp.
Then, you must pay the federal business income tax of 21% and the appropriate Montana corporate income tax, ranging from 0% to 9.4%.
C-corp LLCs must submit Form 1120 to the IRS.
Federal Taxes for Montana LLCs
The federal taxes for Montana LLCs include the following:
1. Federal Self-Employment Tax
All managers and members who profit from the LLC must pay self-employment tax.
The Federal Insurance Contributions Act (FICA) administers this 15.3% tax rate, which funds Social Security, Medicare, and other benefits.
2. Federal Income Tax
From personal experience, you must complete regular federal income tax on any profits your Montana LLC earns.
Your wages, deductions, current tax bracket, and filing status determine your Montana income tax liability.
Only the earnings you take from the company are subject to federal income tax, minus certain deductions and exemptions.
This covers your tax-free allowance, company expenditures, and other deductions for healthcare and some retirement plans.
Other Taxes
Additional taxes that your Montana LLC has to pay include:
1. Montana State Income Tax
Montana's state income tax rate is set on your taxable net income. The rate ranges from 1% (income between $0-$360) to 6.75% (income above $21,600).
If your LLC has chosen to be taxed as a C-corp, you must also pay corporate income tax. The standard interest rate is 6.75%.
2. Montana Sales Tax
Unlike most other states, Montana does not have a general sales tax.
That implies your LLC will not be required to get a Montana Sales Tax License and file a sales tax return with the Department of Revenue.
3. Industry Taxes
The Montana Department of Revenue charges taxes on several industries, including alcohol, tobacco, and fuel taxes.
4. Montana State Employer Taxes
Employers must pay unemployment insurance and workers' compensation taxes:
- Unemployment Insurance (UI) Tax—In Montana, if your annual payroll exceeds $1,000 per year, you purchase a firm already subject to UI, or you are a domestic employer that pays at least $1,000 in compensation per quarter, your LLC must pay UI tax [5]. The average tax rate for for-profit LLCs is 0% to 6.2%.
- Workers' Compensation—In Montana, most firms with employees must have workers' compensation.
What Is Tax-Deductible for an LLC in Montana?
Based on our personal journey as Venture Smarter, with the tax landscape for a Montana LLC, it's important to understand the tax-deductible for an LLC, which includes adoption credit, alternative-energy system credit, and elderly care credit.
- Adoption tax credit: $1,000 for each qualifying kid adopted. Legal adoption of a stepchild is ineligible for the credit.
- Alternative-energy system credit: Installing a qualified new alternative-energy system in your house might earn you up to $500.
- Elder care credit: You may be entitled to this credit if you paid authorized costs on behalf of an elderly relative who is 65 or older or was adjudicated handicapped for Social Security reasons. It's worth up to 30% of eligible costs based on adjusted gross income. The maximum credit for a single family member is $5,000, while the maximum credit for multiple family members is $10,000.
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FAQs
Does a Montana LLC Have to File a Tax Return?
Yes, a Montana LLC has to file a tax return. In addition, the LLC's revenues and losses are reported on the owners' personal state-level tax returns.
Is Montana a Good State to File an LLC?
Yes, Montana is a good state to file an LLC. An LLC business form offers several benefits, like personal liability protection and tax advantages.
References:
- https://www.irs.gov/forms-pubs/about-form-1040
- https://www.irs.gov/forms-pubs/about-form-1065
- https://www.irs.gov/forms-pubs/about-form-2553
- https://www.irs.gov/forms-pubs/about-form-1120-s
- https://dli.mt.gov/_docs/abc-clinics/2021-ui-tax-presentation.pdf
