How to File LLC Taxes in North Dakota? (Simple Guide)
As a North Dakota LLC owner, you are liable for keeping up with various tax responsibilities and tax requirements to maintain compliance with state, local, and federal governments.
To help you understand the numerous taxes you are liable to, we have assembled a team of LLC wizards with more than two decades of joint expertise in the LLC business sector. We also did two weeks of research on the North Dakota state website.
This article summarizes all North Dakota LLC taxes you need to be aware of.
Quick Summary
- LLCs in North Dakota are taxed based on the number of members and the corporation filing status.
- Local North Dakota counties may charge sales, use, and property taxes.
- In North Dakota, the base sales tax rate is 5%, with variations of 7% for alcohol and 3% for newly purchased farm equipment and mobile homes used solely for agricultural production.
- Engaging with North Dakota's LLC tax requirements can be daunting in my opinion, but it's a vital step in fostering a sustainable and profitable business environment.
How Are LLCs Taxed in North Dakota?
LLCs in North Dakota are taxed as pass-through entities by default at the state and federal levels.
Because of this status, the IRS does not expect LLCs to file taxes themselves. Instead, the tax filing responsibility is passed down from the LLC to individual members.
LLCs are responsible for filing specific federal, state, and local government taxes. Let's look at them below.
State Taxes for North Dakota LLCs
The Internal Revenue Service must approve the status for a North Dakota LLC to be taxed by the North Dakota state tax commissioner.
The IRS categorizes LLCs based on number of members and corporation status for tax purposes. Here's how.
1. Single-Member LLCs
According to the IRS, single-member LLCs are disregarded entities. In this regard, LLCs are taxed like proprietorships, with the individual owner completing a tax return Form 1040.
2. Multi-Member LLCs
A multi-member LLC is treated like a partnership for tax purposes. The LLC must file a 1065 Partnership Return and distribute a Schedule K-1 to the LLC members [1].
Through the K-1 Form, members report their distributive share of profits. This way, members pay income tax on their personal tax return (Form 1040).
3. LLCs taxed as S-corp
A North Dakota LLC may also be taxed as an S-corp by filing Form 2553 with the IRS. Once approved, the S-corp will not be subject to any federal taxes. Instead, it will only pay individual state income tax.
In our case, we used Form 1120-S to report income.
4. LLCs taxed as C-corp
A North Dakota LLC can also get taxed as a C-corp.
Unlike an S-corp, a C-corp undergoes double taxation, with taxes levied at the federal and the individual income level.
Drawing from our experience, C-corp LLCs file federal taxes using Form 1120, US Corporation Income Tax Return.
If your LLC meets C-corp status filing requirements, you can submit Form 8832 with the IRS.
Federal Taxes for North Dakota LLCs
Here's how North Dakota LLCs pay federal taxes:
1. Federal Self-Employment Tax
LLCs in North Dakota are subject to a 15.3% federal self-employment tax administered by the Federal Insurance Contributions Act (FICA).
The federal self-employment tax covers Medicare, Social Security, and other benefits.
As an S-corp, you won't be liable to pay the 15.3% self-employment tax on your income or withdrawals; instead, you'll pay on your individual salary.
Read our article and learn how to reduce & avoid self-employment tax.
2. Federal Income Tax
Your LLC is also liable for filing the federal income tax.
Based on our experience, federal Income tax is only levied on profits withdrawn from the business minus allowances and specific deductions like expenses, healthcare, and retirement plans.
The amount of federal income taxes you pay varies with your earnings, current income tax bracket, deductions, and filing status.
Other Taxes
Here are the other taxes a North Dakota LLC pays:
1. Business Tax
Since North Dakota LLCs don't pay and file LLC business taxes directly, the entity's profits/loss is passed through to business owners who file individual tax returns.
All LLCs with a corporation filing status are subject to the North Dakota corporate tax.
The North Dakota corporate tax is filed with Form 40 with rates below:
- $0-$25,000 charged 1.41% of North Dakota taxable income.
- Over $25,000- $50,000 charged $352.50 plus 3.55% of the amount over $25,000.
- Over $50,000 charged $1,240 plus 4.31% of the amount over $50,000 [2].
2. Sales and Use Tax
North Dakota LLCs engaged in retail must collect sales tax on taxable sales like physical goods and services.
In our case, we obtained a Sales and Use Permit from ND TAP 30 days before transactions began, specifying our tax payment schedule.
The state sales tax rate is 5%, with specific items taxed higher.
However, it is 7% for alcohol, 3% for newly purchased farm equipment solely used for agricultural production, and 3% for newly purchased mobile homes [3].
Local jurisdictions may impose additional taxes.
Purchasers of taxable goods not taxed at sale must pay a use tax, calculated like sales tax.
Related Articles:
- How to Open an LLC in North Dakota
- Top LLC Formation Services in North Dakota
- Professional Registered Agent Services in North Dakota
3. Local North Dakota Taxes
In addition to the local sales and use tax discussed above, North Dakota LLCs may need to pay property taxes. In North Dakota, all real estate is subject to property taxes unless it is very specifically exempt.
"Property taxes are set and levied by the counties, who then give the funds to the relevant taxing districts such as the city, township, school, or others as necessary."
- Delina Yasmeh, J.D./Tax LL.M, Distinguished Expert in Mergers & Acquisitions
Drawing from our experience, North Dakota requires payment of all property taxes by January 1. However, late payments are not subject to penalties.
Property taxes go directly to each county, and you must direct any specific inquiries to your county's Tax Director or Auditor.
4. Taxes in Lieu of Property Tax
Some industries in North Dakota don't pay property taxes; they pay industry-specific levies [4].
These sectors and assets may include:
- Rural electric cooperatives
- Tourism or concession license
- Telecommunications companies
- Land owned by the Board of University and School Lands
- Farm or ranch land owned by nonprofits for conservation
5. Employee & Employer Taxes
North Dakota employers and employees are subject to various taxes, including:
- North Dakota Income Tax Withholding: North Dakota LLCs must submit income tax withholding if they're paying wages to an employee in the state. However, wages paid by a farmer or rancher or wages exempt from federal tax withholding are not subject to income tax withholding in North Dakota.
- Unemployment Insurance Tax: Employers must pay UI tax if they have a quarterly payroll of $1500 or at least one employee for 20 weeks out of the year [5].
- Workers’ Compensation: In North Dakota, most employers must carry worker's compensation insurance. The North Dakota Workforce Safety & Insurance is the only provider and administrator for North Dakota's workers' compensation system.
FAQs
Does North Dakota Have a Sales Tax?
Yes, North Dakota has a sales tax levied at 5% for most of the sales, 7% for alcohol, 3% for new farm equipment, and 3% for new mobile homes.
Do Foreign LLCs in North Dakota Need to Pay North Dakota Taxes?
Yes, foreign LLCs in North Dakota need to pay North Dakota taxes, including state and local taxes.
References:
- https://www.irs.gov/forms-pubs/about-form-1065
- https://www.tax.nd.gov/business/corporate-income-tax
- https://www.tax.nd.gov/business/sales-and-use-tax
- https://www.tax.nd.gov/local-government/property-tax
- https://www.jobsnd.com/unemployment-business-tax/about-reporting-and-payment-taxes
