As a small business owner, you may be wondering how to file taxes for an LLC. You're not alone!
The process of filing taxes for an LLC can seem quite confusing at first, but it's actually simpler than you might think.
There are a few different ways that tax options for LLCs can benefit your business, no matter if you're a small business owner or you're going big.
In this blog post, we'll cover how to file taxes as well as how this option is especially appealing to entrepreneurs who don't want the hassle of paying personal income taxes too!
Filing LLC Taxes for the First Time
First-time filers need to go through a checklist, although you have to keep in mind that these requirements may vary depending on state taxes where your business is registered.
Generally speaking, all LLCs need to file an LLC-12 form. This is a document that identifies your business as either sole owner, partnership, or corporation (S corporation or C corporation).
The next step is to file the appropriate LLC tax forms per type of entity you designated on the LLC-12 form.
For instance, if it's a sole proprietorship organization, then you would fill out and submit an IRS Form SE.
This form is for sole proprietorships, which don't have a way to distribute profits or losses among the owners of an LLC (unlike partnerships).
Let's get into more detail about how LLC owners pay taxes depending on the type of their limited liability company.
Filing Taxes as a Single-Member LLC
As a single-member LLC, the main tax difference is that you'll likely have to file as a disregarded entity instead of a sole proprietor.
LLC is a pass-through entity, which means that LLC tax obligations can't be separated from the business owner.
Your business taxes can't be separated from your personal income taxes, and it might also mean double taxation if both entities claim depreciation deductions in different years or for different periods.
To file taxes for your business as a single owner, you need to file for federal tax Form 8832 Entity Classification Election. Make sure to select the corporate tax treatment box.
You will also have to complete an Internal Revenue Service Schedule C as a single-member LLC owner, which is the same form sole proprietors use when filing their taxes.
If you want to minimize your self-employment tax burden, opt for electing corporate taxation for the disregarded entity.
Filing Taxes as a Partnership LLC
Some limited liability companies which have two or more members pay income tax like partnerships.
Some LLCs also need to fill out a partnership return based on their business structure.
If this sounds like your case, you're in luck because it's as simple as filling out Form 8832 and filing it with your personal income tax return.
You will also need Form 1065, which is an informational tax return and reports all of the partnership's income and expenses.
This form is due every year on March 15th, 2021, along with your personal tax return.
In addition to your personal tax return, multi-member LLC must submit form K-1.
Form K-l is a partner's personal tax return. It's due on the same date as your individual income tax return and applies to each LLC member. It should be included in Schedule E.
Keep in mind that there could be additional due dates for each partner's tax return, including extensions.
Partnerships also face limitations when it comes to the deductible amount covering social security and Medicare taxes.
Filing Taxes as a Corporation
LLC offers flexibility in corporate taxation. LLCs can choose to be taxed as a corporation by filing Form 8832, choosing between S corp and C corporations, or electing to be treated as an individual for income tax purposes (default).
If you are considering incorporation with your business partner(s), be sure that everyone agrees on the type of corporate structure before you file.
The structure should be specified in your LLC Operating Agreement.
C Corporation
LLC tax filing as a C corp has to submit Form 8832 and file a corporate income tax return annually.
Although corporate taxation offers a lot of flexibility, it also poses some challenges concerning paperwork.
For this reason, we recommend hiring an appropriate state tax agency to handle these legal matters.
You will also have to file a U.S. Corporation Tax Return (Form 1120) if you opt for LLC that is taxed like a C corporation.
S Corporation
LLC S corporations are pass-through entities, like partnerships or sole proprietorships.
As a result, they pay tax on their net income and losses to the individual owners as if those profits were personal.
You will need to file IRS Form 2553 if you want to pay taxes as an S corporation.
This status allows you to pay lower self-employment taxes than if the LLC was taxed as a partnership or sole proprietorship.
If your LLC has more than one owner, each individual must file Form 2553 for their share of income and losses (unless they agree on filing only one).
As an S corporation, you do not need to file Form 8832.
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FAQs
Is LLC Taxed Quarterly?
LLCs are required to file state income tax returns annually. Income taxes are not paid quarterly with LLC filing requirements, and the business does have a choice of how it pays its quarterly estimated taxes.
It is possible for an LLC to be taxed quarterly, but it would need a special request from its members in order to take this action.
The best option for LLC business owners who want payments made quarterly instead of annually and also avoid penalties and interest fees is to request a change in tax status with the IRS.
This process is complex, and it should be completed by an expert, as there are many factors to take into consideration.
What Can I Write Off With an LLC?
LLCs allow deductible expenses like business travel, supplies, and equipment costs, although the list of these deductions will largely depend on the type of business you're running.
Generally speaking, the most common tax deductions for LLC taxes include depreciation and amortization.
As the owner of an LLC, you can also deduct personal expenses related to your business, such as a portion of your home's mortgage interest or property taxes.
Does LLC Pay Federal Income Taxes?
An LLC is a separate tax entity in the eyes of the IRS, so it pays income tax based on the number of LLC members and the LLC's profits or losses which are then passed through to the member tax returns.
You have to be mindful of the fact that LLC members are not employees of the company, meaning there is no need to pay payroll taxes.
Instead, they are self-employed individuals who have to pay self-employment taxes included in Form 1040.
How Much Money Does an LLC Have to Make to File Taxes?
Depending on the type of your limited liability company (LLC), business income and LLC profits can make a difference when it comes to your tax status.
If you are a one-member LLC or a sole proprietorship, the taxable income is any amount that exceeds $400 annually.
If you made no profit as a single-member LLC and have no business expenses for the deduction, filing for federal tax purposes is no need.
On the other hand, partnerships and corporations pay tax regardless of the profit.
What if My LLC Has No Income?
Inactive LLCs and LLCs that have made no profit could still be subject to tax payments.
This happens when a member of your LLC has made income elsewhere. In that case, the member must file personal tax returns or even file a Schedule C.
If you are a two-member LLC, the taxable income is any amount that exceeds $400 annually.
If, as a dual-member LLC, both members made no profit and have no business expenses for the deduction, but your partner's share of company profits exceeds $400 per year, then they must file taxes. The same applies to corporations with multiple shareholders.
