Key Takeaways

  • The specific LLC tax form you file depends on how your LLC is taxed: as a disregarded entity, partnership, C corporation, or S corporation.
  • Multi-member LLCs taxed as partnerships must file Form 1065 for LLC to report business income, deductions, gains, and losses.
  • Each member receives a Schedule K-1 showing their share of the LLC’s profits or losses, which they report on their personal return.
  • Understanding filing deadlines, required schedules, and penalties for late filing is essential to avoid costly IRS fines.
  • LLCs can elect a different tax classification (e.g., corporation) by filing Form 8832 or Form 2553, but this affects future filing requirements.

The LLC tax form that you will use for your company depends on the tax treatment you have elected. 

Tax Treatment of an LLC

Limited liability companies (LLC) with one member are called single-member LLCs, and these entities are disregarded by the IRS when it comes to federal income taxes. Instead of the LLC being taxed directly, the sole member will use his personal return to report company expenses and income. Under tax rules, members of a multi-member LLC are treated like partners, which means they are passed profits and losses instead of the LLC handling these issues directly.

One of the most difficult issues for the members of an LLC is whether their earnings from the company are subject to self-employment taxes. Generally, if a member actively participates in the LLC, he is required to pay self-employment taxes.

However, if an LLC member does not have an active part in operating the company, he will be treated as a limited partner, meaning he will only need to pay self-employment taxes or the compensation he receives for services and not for the profits that have been distributed. Unfortunately, there are no clear-cut laws on how inactive LLC members can qualify for this tax treatment.

The IRS has proposed rules to help clarify this issue. These rules state LLC members should pay self-employment taxes on distributed profits if they:

  • Are involved with the LLC for more than 500 hours a year
  • Hold liability for debts of the company
  • Have the power to sign contracts for the LLC

These rules would also require LLC members in certain fields to pay self-employment taxes:

  • Accounting
  • Architecture
  • Consulting
  • Engineering
  • Health
  • Law

While these proposed rules have not been formally adopted, the IRS won't take any action against LLCs that choose to follow these rules. LLCs are also subject to state taxes, which can differ depending on the state. LLCs in California, for example, must pay both an $800 annual tax and a fee that is based on the company's income if it earns more than $250,000.

Many small businesses choose not to form a California LLC because of the $800 annual fee, particularly if the liability protections do not make up for the cost of the tax. If you want to know what state taxes may apply to your limited liability company, you should check with your state's Department of Revenue. 

Single-Member LLC Forms

Single-member LLCs have only one member. When you're operating a single-member LLC, your company will be taxed as a sole proprietorship, which means you will use your personal 1040 form to report losses and profits. However, if the sole LLC member is a corporation, Form 1120 or 1120S will be used to report expenses and income.

Single-member LLCs are not allowed to submit a partnership return. In some states, LLCs that have been formed by a husband and wife can choose to be treated as a single-member LLC for federal taxes. California is one state that allows for this election. 

Multi-Member LLC Forms

Multi-member LLCs have more than one member, and these companies are automatically treated as partnerships for taxes. This means that all the company's losses and profits will be passed to the company's owners and then described on their individual federal returns.

In most cases, multi-member LLCs will file Form 1065, which is a partnership return. Multi-member LLCs that would prefer to be taxed as a corporation can file Form 8832 with the IRS. However, once your LLC has elected corporate tax status, you must wait five years to change your election. LLCs that wish to file as a partnership are not required to File Form 8832.

LLCs that decide to be treated as a C corporation will use Form 8832 to report profits and losses. LLCs that have chosen S corporation tax treatment will report profits and losses on Form 2553. 

Understanding IRS Form 1065 for LLCs

Form 1065 for LLC is the U.S. Return of Partnership Income, and it is the primary tax form required for multi-member LLCs that are treated as partnerships. This form reports the LLC’s total income, deductions, gains, losses, and other financial details to the IRS for the tax year. While the LLC itself does not pay federal income tax, it must still submit Form 1065 annually so that the IRS can verify each member’s share of the company’s financial activity.

Here’s how the process works:

  • Pass-through reporting: Income and losses “pass through” the LLC and are reported on the members’ individual tax returns rather than being taxed at the entity level.
  • Schedule K-1: Each member receives a Schedule K-1, which details their share of profits, losses, deductions, and credits. This document is critical for accurately preparing each member’s personal return.
  • Supporting schedules: Form 1065 may include multiple attachments and schedules, such as Schedule B (other information about the partnership), Schedule K (summary of income and deductions), and Schedule L (balance sheet).

Filing Deadlines and Penalties

Timely filing of Form 1065 is essential to remain compliant and avoid IRS penalties. Generally, the due date for filing is March 15 (the 15th day of the third month after the end of the tax year) if your LLC uses a calendar tax year. LLCs using a fiscal year must file by the 15th day of the third month following the close of their fiscal year.

If your LLC cannot meet this deadline, you can request a six-month extension by filing Form 7004 before the original due date. However, while the extension gives you more time to file, it does not extend the time to deliver Schedule K-1 to members.

Failing to file Form 1065 or distributing K-1s late can result in significant penalties. As of 2025, the IRS charges $245 per member, per month for up to 12 months for late filing. With multiple members, these penalties can quickly add up, making it essential to plan ahead and file on time.

Tips for Accurate Form 1065 Filing

Filing Form 1065 for your LLC can be complex, but following these best practices can help you avoid errors and compliance issues:

  • Keep thorough records: Maintain detailed accounting records throughout the year, including receipts, invoices, and financial statements.
  • Review allocations: Ensure that income, deductions, and credits are correctly allocated to each member according to the LLC’s operating agreement.
  • Double-check K-1 forms: Mistakes in Schedule K-1s can lead to discrepancies in members’ individual tax filings.
  • Consider professional help: If your LLC has complex financials or numerous members, working with a tax professional can save time and reduce audit risk.

Default Designations

Once your LLC has been formed, you will be treated automatically as a partnership by the IRS for the purposes of income taxes. If you are the only member of your LLC, then the profits of your business will be taxed the same as if you were a sole proprietorship. As you might expect, corporations and partnerships must follow different rules for filing taxes.

Frequently Asked Questions

  1. What is Form 1065 for LLC used for?
    Form 1065 reports the income, deductions, gains, and losses of a multi-member LLC taxed as a partnership. It ensures the IRS receives accurate information about the LLC’s activities and how profits and losses are distributed among members.
  2. Who must file Form 1065?
    Any LLC with more than one member that is taxed as a partnership must file Form 1065 annually, even if it had no income or expenses during the tax year.
  3. What is a Schedule K-1 and why is it important?
    Schedule K-1 is issued to each LLC member and shows their share of the company’s income, losses, deductions, and credits. Members use it to complete their personal tax returns.
  4. What happens if an LLC files Form 1065 late?
    The IRS can impose penalties of $245 per member, per month (up to 12 months) for late filing. Additionally, late or missing Schedule K-1 forms can trigger further penalties and delays.
  5. Can a multi-member LLC avoid filing Form 1065?
    Only if the LLC has elected to be taxed as a corporation (C or S corp) by filing Form 8832 or Form 2553. Otherwise, Form 1065 is mandatory for partnership-taxed LLCs.

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