Guide

How to file business taxes for LLC

Find out about filing taxes as a limited liability company (LLC) and the different business taxes you may have to pay.

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Read on so that you have more knowledge about what’s required this tax year. You will learn about how to file your income taxes, including what forms you need. You will also get information about other taxes that you may need to pay.

The basics you need to know about for an LLC

Some specific rules apply when it comes to taxes for an LLC. Preparing tax returns can be complicated, with filing requirements depending on a variety of factors. Getting help from a tax professional is a good idea.

The IRS classifies an LLC with a single natural person owner as a sole proprietorship by default. If an LLC has more than one member, it’s classified as a partnership by default. To change this, you can file IRS Form 8832 or Form 2553, depending on your desired tax treatment. Each entity type completes a different form to file their income taxes.

Your company may have to pay the following taxes:

One of the main benefits of an LLC is that it can operate as a pass-through entity for federal and state income tax. Then, the members pay tax on their share of the profits, rather than the LLC itself being taxed.

Filing income taxes for a single-member LLC

If the LLC is owned by one owner, that single-member LLC is classified as a disregarded entity by the IRS (which means it’s considered the same entity as its owner). If the owner is a natural person, that owner reports their business income by including a Schedule C form with their individual income tax return. Note that if your LLC earns income renting out real estate, you may need to report the income on Schedule E instead.

Filing income taxes for a multi-member LLC taxed as a partnership

Filing taxes for a multi-member LLC taxed as a partnership is more complicated.

  • The LLC files Form 1065, reporting all income and expenses for the business. This is an informational return.
  • Schedule K-1 from Form 1065 contains details of a member's share of the activity from the business. Members then report the information from Schedule K-1 on their personal tax return.

Filing income taxes for a C Corporation

For an LLC to be taxed as a C Corporation, it must first file Form 8832 with the IRS. It then files a corporate tax return, Form 1120. The corporate tax rate is 21% on your business income. If the shareholders receive any dividends, the corporation will issue them a 1099-DIV.

Filing income taxes for an S Corporation

For an LLC to be taxed as an S Corporation, it must first file Form 2553 with the IRS. S Corps are pass-through entities, so they don’t pay taxes themselves in most cases.

An LLC filing as an S Corporation then files a Form 1120S reporting income, expenses, and overall profit. After this, the LLC sends all shareholders a Schedule K-1 form detailing their share of profits or losses. Individual owners then file their personal income tax returns using that Schedule K-1 data.

Other taxes for LLCs

LLCs may have to pay a variety of federal and state taxes. There may also be some local taxes as well, depending on where the business is located and the business structure. The most common taxes that LLCs have to pay are:

  • payroll taxes
  • sales tax
  • property tax

If you employ staff, both you and your employees are subject to payroll taxes. Payroll taxes may include federal, state, and local taxes. While state and local taxes vary from state to state, federal taxes are the same for all businesses. The four federal payroll taxes are:

  • Social Security (50% paid by the employer)
  • Medicare (50% paid by employer)
  • Income tax (100% paid by employee)
  • Unemployment tax (100% paid by employer)

For state and local taxes, it depends on where you are located. Check with your local authorities.

The various taxes have different remittance schedules and deadlines. You need to pay them on time and keep to the schedule, as there are penalties for late payments. A lot of small businesses use payroll software to assist with the calculations and keeping up-to-date.

Property tax

Property taxes vary from state to state, as well as by city and county. They include tax on real estate that a business owns or uses. Some states tax tangible assets, such as cars and equipment; some tax intangible assets, such as copyrights and intellectual property.

Sales tax

Most states have sales tax, which you may be required to collect. You may need to apply for a sales tax license or permit. Some local counties and cities also charge a sales tax.

Frequently asked questions

Should I use a tax professional to file taxes for an LLC?

Taxes for LLCs can be complicated. Using a tax professional to file your taxes is good business practice to avoid pitfalls and ensure your taxes are filed correctly. A professional can also help you find deductions that apply to your business as well.

Should I file my personal taxes separately?

This depends on the structure of your LLC:

  • If you own a single-member LLC, you file as a sole proprietor, usually with a Schedule C as part of your Form 1040.
  • If your business is a multi-member LLC taxed as a partnership, your LLC files Form 1065, and members then individually report the information from Schedule K-1 on their personal tax return.
  • If your business is treated as an S Corporation, then it files Form 1120S. Then owners individually report the information from Schedule K-1 on their tax return.
  • If your business is treated as a C Corporation, then it files Form 1120. If it has taxable income, it would pay corporate income taxes. The only thing the members file on their personal income tax return is if they receive dividends as shareholders.

What happens if an LLC files its taxes late?

If you fail to file your taxes on time, the IRS could charge a late-filing fee.

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Disclaimer

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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