How to File LLC Taxes in North Carolina? (Full Guide)
As a North Carolina LLC owner, you must keep your LLC in compliance with the state tax regulations by filing taxes accurately.
To help you understand the various taxes the North Carolina state mandates, we have sought the knowledge of LLC experts with decades of experience in the sector.
We also researched official state websites for accurate information.
Based on our research, this article highlights the taxes a North Carolina LLC files.
- North Carolina LLCs file taxes under pass-through taxation.
- All members of a North Carolina LLC are subject to a 4.99% personal income tax return rate.
- LLCs in North Carolina pay a sales tax of 4.75%.
How Are LLCs Taxed in North Carolina?
LLCs in North Carolina are taxed as pass-through entities by default. This means the LLC does not pay federal taxes; however, the tax responsibility is passed through to its owners, who then report it as income on a personal tax return form.
The LLC is further subject to state income tax and local and federal taxes.
State Taxes for North Carolina LLCs
State taxes for North Carolina LLCs vary depending on the LLC structure and corporation status. Here's how.
1. Single-Member LLCs
Single-member LLCs in North Carolina are taxed as a sole proprietorship.
LLCs taxed under this default status must file federal tax Form 1040. Further, North Carolina has a 4.99% personal income tax return rate .
Owners pay this tax rate when they file their personal income tax returns.
2. Multi-Member LLCs
A North Carolina multi-member LLC is taxed as a partnership.
The LLC must file Partnership Form 1065, followed by a Schedule K-1 to the LLC owners.
The LLC owners must report their distributive share of profits on the K-1 Form.
This way, they can pay income tax on their return (Form 1040).
Your LLC must also file a North Carolina Partnership Return (Form D-403) with the Department of Revenue to pay its North Carolina income tax.
"In a multi-member LLC, taxes pass through to the LLC owners, with each member-owner paying taxes depending on their percentage of ownership."
- Peter Hanna, Business Attorney
3. LLCs taxed as S-corp
North Carolina LLCs may elect their business as na S-corp for tax reasons.
Although an LLC with an S-corp status is taxed as a pass-through entity, it still has benefits.
The IRS allows the LLC to make internal distributions to its members without paying federal self-employment tax.
Instead, individual members are liable to pay self-employment tax on their salary.
Your LLC must also pay the state's franchise tax. For the first million dollars your LLC makes, the franchise tax is $200 minimum.
If your S-corp earns more than this, you must pay an extra $1.50 for each $1,000 your LLC earns over the first million dollars .
You can select your LLC to file as an S-corp as long it meets the IRS's requirements for S-corps and filing Form 2553.
4. LLCs taxed as C-corp
A C-corp is another elective status, although not common.
Taxing LLC as a C corporation comes with double taxation, whereby the corporation and shareholders pay taxes, but for some LLCs, the benefits can sometimes outweigh the drawbacks.
C-corps benefit from this stay by attracting more investors and massive tax deductions. You must file Form 8333 to file as one.
North Carolina LLCs filing under C-corp status are subject to pay the federal corporate income tax of 21% and the North Carolina Franchise tax.
However, you must configure the following totals and pay whichever yields the greatest amount owed for North Carolina's state franchise tax:
- Net worth
- 55% of the appraised value of tangible North Carolina property
- Investment in tangible North Carolina property
Further, C-corps must report corporate tax with Form 1120.
Federal Taxes for North Carolina LLCs
North Carolina LLCs must pay federal taxes, including:
1. Federal Self-employment Tax
LLCs are subject to a 15.3% self-employment tax that encompasses 12.4% for Social Security and 2.9% for Medicare. This tax is contributed to the Federal Insurance Contributions Act (FICA).
Before filing to pay self-employment tax, locate your federal Employer Identification Number.
2. Federal Income Tax
You must also pay federal income taxes on your income. This tax varies with your earnings, tax bracket, deductions like insurance, and whether you're filing as a corporation or by default.
LLC owners only pay federal income taxes on profits they take out, allowances, minus deductions.
Other than federal and state income tax, North Carolina charges other LLC business taxes, including:
1. Franchise Tax
The annual franchise tax is a tax North Carolina collects from corporations within the state. If the IRS regards your LLC as a corporation for federal tax purposes, you may need to file a North Carolina franchise tax return.
Franchise taxes are filed with the state corporation income tax return Form CD-405.
2. Sales and Use Tax
LLCs selling products to North Carolina customers must register with the Department of Revenue to collect and pay sales tax.
You can do this online or on paper using Form NC-BR; after that, you will receive a Certificate of Registration. Sales tax must be paid either quarterly or monthly.
The North Carolina sales tax is 4.75%, and local governments can impose an additional 2.75% . Counties may also levy additional taxes.
For instance, a transit county sales and use tax of 0.50% is calculated in Durham, Orange, and Wake counties .
3. Local North Carolina Taxes
Certain goods and services, including cigarettes, cell phone plans, alcohol, real estate, and gasoline, are subject to additional local taxes levied by certain cities.
Therefore, you must comply with local North Carolina business tax regulations in the city or county of your LLC and everywhere else your company conducts business.
4. Employer Taxes
Employers must pay employer taxes taken from employees' paychecks at the state level and sent to the NC Department of Revenue.
After registering as an employer using Form NC-BR, utilize Form NC-5 to withhold and pay employee income taxes as needed every month or every three months.
Annual tax withholding reconciliation is done by submitting Form NC-3.
All LLC employees must also collect and withhold payroll tax as soon as they receive their salary.
For state unemployment insurance (UI) taxes, you must register with the Division of Employment Security.
Form NCUI 604 can be used for this online or on paper. Using Form NCUI 101, wages must be reported and LLC taxes paid quarterly.
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5. Excise Taxes
Excise or industry taxes are additional taxes that businesses in specific industries in North Carolina are subject to.
You may have to pay additional taxes depending on what you're selling.
An industry-specific tax list is available from the North Carolina Department of Revenue:
- Alcoholic Beverages Tax
- Cellphone (Wireless) Services Tax
- Real Estate Tax
- Motor Fuels Tax
- Privilege Licenses Tax
What is Tax-Deductible for an LLC in North Carolina?
The tax-deductible for an LLC in North Carolina include mortgage interest, real estate property taxes, charitable contributions, and medical expenses.
North Carolina LLCs benefit from franchise tax credits, which include:
- Annual Report Fee tax credit
- Short-period tax credits
- Machinery & Equipment Investment tax credit
- Research and Development tax credit
- Major Computer Facilities credit
- Small Business Health Insurance tax credit
- New Work Opportunity tax credit
Additionally, there are LLC start-up costs that are tax deductibles:
- Purchasing equipment
- Business Insurance
- Business-related auto costs
- Rental costs (for premises)
Ensure you keep your receipts and records, as you'll need them to offset your tax return.
Do LLCs Pay Taxes in North Carolina?
Yes, LLCs pay taxes in North Carolina. LLCs must pay state and federal income, sales, employer, and local taxes.
What Tax Forms Does an LLC File in North Carolina?
The tax forms an LLC file in North Carolina include Form 1040 to report personal income taxes, Form 1065 for multi-member LLCs, and Form 1120s for corporations.
Do Foreign LLCs in North Carolina Need to Pay North Carolina Taxes?
Yes, foreign LLCs in North Carolina need to pay federal, state, and local government taxes.
Do You Need Help Filing Your North Carolina LLC Taxes?
Filing North Carolina taxes requires precision and timeliness.
That's why it's essential to utilize automated accounting software like QuickBooks. QuickBooks is a software with simple user interfaces to file your sales taxes and record your LLC's tax payment.
With QuickBooks online, you can record all your LLC expenses, making it easier to offset your return when filing for tax credits.
Their services allow you to invite your accountant, who'll prepare and file taxes on your behalf.