Whether you are incorporating a business already in existence or setting up a business, you will need to stay compliant with Oklahoma state requirements for LLC formation.
To help you understand the tax filing procedure, we sought expert help from our team of licensed business advisors who have been in the LLC industry for over two decades.
We spent the past three weeks reviewing the Oklahoma Secretary of State’s website for the correct and updated LLC tax form details.
Here’s a detailed LLC formation guide on filing taxes in Oklahoma.
- All members of an LLC in Oklahoma are required to pay self-employment tax at the rate of 15.3%.
- LLCs with C-Corp status must pay federal corporate income tax at the rate of 21% and 4% corporate income tax.
- Some LLCs pay Oklahoma sales tax on $100,000 worth of taxable merchandise.
How Are LLCs Taxed in Oklahoma?
LLCs in Oklahoma are taxed as pass-through entities based on the number of LLC members who pay individual income taxes on business profits and pay state pass-through entity tax of 4%.
However, the Oklahoma tax department also charges other federal, corporate, and income taxes for LLCs.
State Taxes for Oklahoma LLCs
In Oklahoma, the state taxes for LLCs are different depending on the structure of the LLC.
1. Single-Member LLC
A single-member LLC is considered a sole proprietorship by default status, which means your single-member LLC is not expected to submit federal tax returns.
Instead, you, as the owner, will file the return and pay federal income taxes. This is known as pass-through taxation, where the LLC doesn’t pay its own taxes.
2. Multi-Member LLC
A multi-member LLC owned by two or more owners is considered a partnership by default status.
Owners must report LLC income and expenses on their personal tax returns and are responsible for filing quarterly estimated LLC tax returns.
Your LLC should file a 1065 partnership return and send the owners a Schedule K-1, which has a distributive share of their profits.
Also, the K-1 income “flows through” to the owners. Then, the income taxes are paid by each owner on their personal income tax return (Form 1040) .
3. LLCs Taxed as S-corp
LLCs registered as S-Corp companies are exempted from paying additional federal income taxes. Your LLC keeps its pass-through status and does not pay the self-employment tax.
Owners are allowed to declare some of their income as salary and other income as withdrawals or distributions.
This means that the business's taxable income passes through to the owners liable for filing federal taxes.
To have your LLC taxed as an S-Corporation, you should submit Form 2553 to the IRS.
4. LLCs taxed as C-corp
The C-corp status is the default tax status used for corporations. However, very few LLCs choose to be taxed as C-corps.
Having your LLC taxed as a C-Corporation can help owners save money on healthcare fringe benefits. A C-corp is considered a legal entity separate from its shareholders and must submit a separate tax return.
LLCs with C-corp status are required to pay federal corporate income tax at the nominal rate of 21%, Oklahoma’s 4% corporate income tax, and the state’s franchise tax on taxable earnings and then distribute money to the owners either by salary or dividends.
In addition to paying corporate taxes, owners must pay taxes at the individual level.
Dividends are taxed at 10% to 37%, depending on the shareholder’s tax bracket, while if owners take salaries, they pay 15.3% self-employment tax for Social Security and Medicare (FICA).
Your LLC can request to be taxed like a C-corporation by filing Form 1120 with the IRS .
Federal Taxes for Oklahoma LLCs
LLCs in Oklahoma are not subject to federal income tax since they are considered pass-through entities. However, the owners pay federal taxes on the LLC’s income.
1. Federal Income Tax
You are required to pay federal income tax on the earnings you take out of your LLC. The sum of your tax depends on your current income tax bracket, earnings, filing status, and deductions.
The federal income tax often includes the profits you take out of your LLC, fewer allowances, and specific dedications such as some retirements and healthcare plans.
2. Federal Self-Employment Tax
All members of an LLC are required to pay self-employment tax. The federal self-employment tax applies to all members who take profits out of the business.
It is administered by the Federal Insurance Contributions Act (FICA), which includes Medicare, Social Security, and other benefits. In Oklahoma, the self-employment tax rate is 15.3%.
When calculating how much self-employment tax you may owe, you will be able to deduct your business expenses from your income.
However, you may pay less self-employment tax by treating your LLC as an S-Corp. This allows you to declare some of your earnings as salary and others as withdrawals or distributions.
As a business owner, you must pay the Oklahoma Tax Commission these three types of Oklahoma tax. Also, you may be required to pay use tax depending on your business type.
These LLC business taxes apply despite having an S Corp or C Corp.
1. Oklahoma Income Tax
As an LLC owner, you will need to pay Oklahoma income tax on the earnings you pay yourself. Your employees are also required to pay the state income tax.
The tax rates range from 0.5% to 4.75%, depending on the amount of your taxable income. Consult with a tax advisor to ensure that you meet the required amount.
Additionally, the Oklahoma Tax Commission requires every corporation to file a corporate income tax return at the rate of 4%.
2. Oklahoma Sales and Use Tax
You may need to collect Oklahoma sales tax at the point of purchase if your business involves certain services or physical products such as books, furniture, or raw materials.
Oklahoma does not levy sales tax on products regarded as necessities, including clothing, gas, and medication .
However, the sales tax in some regions may be high due to additional sales tax that local taxing jurisdictions may impose.
Additionally, Oklahoma requires business owners to pay use tax at the rate of 4.5% if they purchase physical products outside the state for use in Oklahoma.
3. Oklahoma Franchise Tax
LLCs in Oklahoma are not subject to the franchise tax but may still be subject to state income taxes requiring $1.25 for each $1000 of capital used in Oklahoma.
What is Tax-Deductible for an LLC in Oklahoma?
The tax-deductible for an LLC in Oklahoma includes the standard deduction and itemized deductions on your federal tax return.
The standard deductions are:
- Head of household: $9350
- Single or married filing separately: $6350
- Married filing jointly or Qualifying widower: $12700
You are required to itemize deductions on your Oklahoma federal deductions apart from any state and local sales or income tax deducted.
On your state return, your deductions must be limited to $17,000, with exceptions in medical expenses and charitable contributions that are not subject to this limit.
Oklahoma allows other state-specific deductions:
- Qualified adoption expense - up to $20000 annually.
- Qualifying disability deduction - may deduct expenses incurred while repairing a home, workplace, or motor vehicle.
- Contributions to Oklahoma 529 College Savings Plan and OklahomaDream 529 account.
- Child tax credit.
- Tax paid to another state tax credit.
Does Oklahoma Have Sales Tax?
Oklahoma has a sales tax of 4.5%. However, local sales tax may be imposed by the municipalities on top of the state’s flat rate.
Do I Have to Pay an Annual Fee for My LLC in Oklahoma?
Yes, you have to pay an annual fee for your LLC in Oklahoma by getting the Oklahoma LLC Annual Certificate for $25 per year.
Do You Need Help Filing Your Oklahoma LLC Taxes?
If you are starting out as an Oklahoma LLC owner, the process of filing and paying both state and federal taxes can be intimidating.
When starting the process of filing your business taxes, review your information with accuracy and make sure you are ready to file taxes on time.
To streamline the process, consider using QuickBooks to ensure that you effectively file your LLC taxes in Oklahoma.
QuickBooks has a user-friendly system that makes the annual tax filing and reporting for LLCs in Oklahoma an easy process.