Key Takeaways

  • LLC tax filing requirements depend on the entity’s tax classification: sole proprietorship, partnership, or corporation.
  • Single-member LLCs are taxed like sole proprietorships; multi-member LLCs are taxed like partnerships unless they elect corporate taxation.
  • LLCs may need to pay additional taxes like franchise, sales, property, and self-employment taxes even as pass-through entities.
  • LLCs must file annual reports and fulfill both federal and state-specific tax obligations.
  • Making a corporate election requires filing Form 8832 or Form 2553 (for S corporation status).
  • LLCs can deduct business expenses and must comply with self-employment tax requirements.

All LLC tax filing requirements depend on how your LLC chooses to be taxed. Based on a number of variables, you may be taxed as a sole proprietorship, a partnership, or a corporation (the number of members will also influence these requirements). In most states, an LLC will need to file an annual report and pay associated taxes. Unless you seek corporate election, your LLC will be a "pass-through" entity for taxation. If your LLC does not have any income or expenses in a given year, you may still be required to file a tax return.

How LLC Members Are Taxed

Unlike a corporation, an LLC is not classified as a separate entity for tax purposes. By default, your LLC will be a "pass-through" entity. If you are a single-member LLC, you will be taxed as a sole proprietorship; and if you operate as a multi-member LLC, you will be taxed as a partnership. Owners or "members," report all profits and losses on their personal tax returns. This means that the LLC itself does not pay taxes. 

  • A single-member LLC must submit a 1040 tax return, paying income tax on the company's net profit.
  • A co-owned LLC is similar in that owners must report all profits and losses on their personal tax returns. Although the LLC does not pay taxes, a co-owned LLC will need to submit Form 1065 with the IRS. 

However, if you are operating an LLC that keeps a significant amount of profits in the LLC itself, a corporate election may be beneficial for tax purposes. Although you will still operate as an LLC, you will file taxes as a corporation. If this is something you're interested in, you will need to file Form 8832. 

In some states, your LLC may also be subject to a franchise tax. This is not related to the company's income, and in most states this fee is approximately $100. However, in the state of California, this tax is a hefty $800.

Additional LLC Member Tax Responsibilities

Even though LLCs are pass-through entities by default, members may also be subject to self-employment taxes, including Social Security and Medicare taxes. If you actively participate in the business, the IRS generally treats your earnings as self-employment income. This is reported on Schedule SE, and you must pay both the employer and employee portions of Social Security and Medicare taxes​​.

Further, LLC members can deduct business expenses such as startup costs, professional fees, supplies, and utilities, potentially lowering taxable income. However, it is crucial to keep meticulous records to substantiate deductions.

Tax Elections for an LLC

How your LLC is treated for taxation purposes will depend on how your company is organized. 

  • When there is just one owner, the IRS disregards the LLC for federal income tax. As the sole member, you would need to report the LLC's profits and losses on your individual tax return.  
  • When there is more than one member, the IRS automatically classifies the LLC as a partnership. Based on member interests, profits and losses are distributed among its members.
  • Once an LLC chooses to be taxed as a corporation, a formal election will need to be made. You can always change your LLC's tax classification at a later date. 

Filing Form 8832 and Form 2553 for Election Purposes

To elect corporate taxation, an LLC must file IRS Form 8832 to be taxed as a C corporation. Alternatively, to elect S corporation status, the LLC must file Form 2553. These elections affect how profits are taxed and how members are paid. An S corporation election allows members to receive a reasonable salary and potentially avoid some self-employment taxes on dividends​​.

Deadlines apply: generally, the election must be made within two months and 15 days after the beginning of the tax year for which the election is to take effect.

Requirements for Filing as Disregarded Entities

If your LLC isn't considered to be a separate entity for tax purposes, you will be taxed the same way as a sole proprietorship. All of the company's expenses and income will be marked as income from self-employment. If your income is more than $400 for the year, you will need to file Schedule C. If there was no business activity or expenses, this will not be necessary. 

State-Specific Filing Requirements for Single-Member LLCs

Even though the IRS disregards single-member LLCs for federal tax purposes, states may treat them differently. Some states require separate filings or payments, like minimum franchise taxes or annual reports. For example, California imposes an $800 minimum franchise tax annually, even if no income is generated​. Business owners must review local requirements carefully.

Requirements for Filing as an LLC Partnership

An LLC taxed as a partnership will be subject to the same requirements as any other partnership. Once again, if there was no business activity and there no expenses to claim, filing is not necessary. When income has been made, the LLC will need to report each member's share. 

If your single-member LLC makes $80,000 with $50,000 of deductible expenses, you will each receive $50,000 of earnings and $30,000 of allowable deductions based on your Schedule K-1. This means, in this case, your LLC will increase your personal taxable income by $20,000. 

Multi-Member LLC Additional State Requirements

In addition to federal filing, multi-member LLCs often face state obligations. States may require annual fees, partnership returns, or additional reporting even if the LLC does not owe federal taxes. In some states, LLCs must pay gross receipts taxes or entity-level income taxes separate from member taxation​.

Members must also ensure that the LLC issues a Schedule K-1 (Form 1065) to each owner, which outlines their share of income, deductions, and credits for individual tax reporting.

LLC Tax Requirements For Filing as an LLC Corporation

Once you have made a corporate tax election, you will treat your business as a separate taxpayer. The business itself will need to report all income and expenses on Form 1120. If you do not file, for instance, you and the other associated owners will not be personally liable. The major downside to this option is that the LLC will be subject to "double taxation."

Understanding your LLC tax filing requirements is imperative when it comes to long-term success. If you do not properly file your taxes, this could lead to issues with your "Certificate of Good Standing" and future ability to operate as a business. Practice due diligence and ask the right questions.

Potential Drawbacks and Benefits of Corporate Taxation

While corporate taxation allows an LLC to retain profits at the entity level, avoiding immediate distribution to members, it introduces double taxation risks. This occurs when the corporation pays taxes on profits, and then members pay personal taxes on dividends distributed​.

However, advantages include the ability to deduct employee benefits like health insurance premiums and retirement contributions at the corporate level, potentially lowering overall tax liability. Corporations must file Form 1120 annually and comply with corporate tax obligations at both the federal and state levels.

Frequently Asked Questions (FAQ)

  1. What forms does a single-member LLC need to file?

    A single-member LLC typically files Schedule C along with their individual Form 1040, and may need to file additional state-specific reports and taxes.

  2. When does an LLC need to file Form 8832?

    An LLC must file Form 8832 if it elects to be taxed as a corporation (C corporation). For S corporation election, Form 2553 must be filed.

  3. What happens if an LLC has no income or expenses?

    If an LLC had no business activity, federal filing may not be necessary, but state filing or franchise fees may still apply, depending on local laws.

  4. How are LLC members taxed on their earnings?

    Members are taxed on their share of profits, reported as personal income. They may also owe self-employment taxes on their earnings.

  5. What taxes besides income tax might an LLC owe?

    LLCs might owe franchise taxes, sales taxes, property taxes, and self-employment taxes, depending on the state and business activity.

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