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.

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. 

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. 

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. 

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.

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