Key Takeaways

  • How to report an LLC depends on its IRS classification (sole proprietorship, partnership, or corporation) and whether it has employees.
  • LLCs may need to file federal, state, and local tax returns, including income, employment, franchise, property, and sales taxes.
  • Multi-member LLCs must file information returns, even if the entity itself does not pay federal income tax.
  • New federal reporting rules under the Corporate Transparency Act (CTA) require many LLCs to disclose beneficial ownership information to FinCEN.
  • Failure to comply with reporting requirements can result in significant penalties, loss of good standing, or even dissolution.
  • LLC owners should maintain thorough records, obtain necessary tax IDs and licenses, and consider professional tax guidance.

LLC tax reporting requirements differ, depending on how the IRS taxes the business. In general, LLCs are responsible for the following:

  • FICA tax
  • Franchise tax
  • Property tax
  • Sales and use tax

Individual owners, or members, of the LLC report their share of profits and losses on their personal tax returns to the IRS.

Limited Liability Company Tax Reporting

As an LLC owner, you have some flexibility in how your business earnings are taxed. The IRS allows you to choose one of the following tax statuses:

LLCs don't pay federal income taxes themselves, but some states impose yearly taxes on them. In addition, even though there's no tax liability for the business at the federal level, multi-member LLCs are still required to file an information report with the IRS.

Beneficial Ownership Information (BOI) Filing Requirements

Beginning in 2024, many LLCs must also comply with Corporate Transparency Act (CTA) requirements by filing Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). This federal reporting requirement is separate from tax filings and aims to prevent money laundering, terrorism financing, and other financial crimes.

Key points about BOI reporting:

  • Who must file: Most domestic LLCs and foreign LLCs registered to do business in the U.S.
  • What to report: Each beneficial owner’s full legal name, date of birth, residential address, and an identifying number from a passport or driver’s license.
  • When to file:
    • LLCs formed before January 1, 2024 must file by January 1, 2025.
    • LLCs formed in 2024 must file within 90 days of formation.
    • LLCs formed on or after January 1, 2025 will have 30 days to file.

Failure to comply can lead to civil penalties of $500 per day and potential criminal liability.

Understanding Federal Reporting Requirements for LLCs

How to report an LLC at the federal level depends primarily on its tax classification. The IRS does not recognize LLCs as a separate tax entity, so they are taxed as one of the following by default:

  • Single-member LLC (SMLLC): Treated as a disregarded entity. The owner reports all business income and expenses on Schedule C (Form 1040), along with self-employment tax on Schedule SE.
  • Multi-member LLC: Classified as a partnership. The LLC must file Form 1065 (U.S. Return of Partnership Income), and each member receives a Schedule K-1 reporting their share of income or loss.
  • LLC electing C corporation status: Must file Form 1120 and pay corporate income tax directly.
  • LLC electing S corporation status: Must file Form 1120-S, and members report their income on their individual returns via Schedule K-1.

Regardless of classification, LLCs should keep detailed financial records, maintain a separate business bank account, and ensure proper documentation of income, deductions, and distributions.

Withholding and FICA Taxes

If you operate an LLC that has employees, you'll probably have to withhold federal income taxes from their wages. 

Employers and employees are both required to contribute FICA taxes, or Medicare and Social Security taxes. Employers withhold the employees' portion of FICA taxes on each paycheck. LLCs that withhold FICA taxes must file a return as well as deposit the amount of withheld tax into an authorized bank.

If your state has an income tax, then your LLC must withhold the necessary taxes from employees and pay the withheld amount to the state.

Reporting Employment and Payroll Taxes

If your LLC has employees, you must handle several payroll tax reporting obligations:

  • Form 941 or 944: Quarterly or annual federal payroll tax returns showing withheld income tax, Social Security, and Medicare contributions.
  • Form W-2 and W-3: Annual wage and tax statements for employees.
  • Form 940: Annual report for federal unemployment tax (FUTA).

In addition, states often require their own employment tax filings and unemployment insurance reports. Keep payroll records for at least four years and remit withheld taxes on time to avoid costly IRS penalties.

Other Taxes

Many states impose additional taxes on LLCs, although these businesses are considered pass-through entities for tax purposes.

State Annual Reports and Business Licenses

Most states require LLCs to file an annual report or statement of information to remain in good standing. These filings typically include:

  • The LLC’s name and principal business address
  • Names and addresses of members or managers
  • Registered agent information

Annual reports are usually filed with the Secretary of State and may require a small filing fee. Failing to file can result in late fees, suspension, or administrative dissolution.

Additionally, many states and municipalities require business licenses or permits, which often must be renewed annually. Check local requirements based on your business location and industry.

Franchise taxes

Franchise taxes are imposed in exchange for allowing an LLC to conduct business in the state. Depending on the state, this tax may be called one of the following:

  • License tax
  • Privilege tax
  • Excise tax
  • Registration tax
  • Registration fee

The amount of the tax varies from one state to another. Some states impose a flat fee, while others charge an amount based on how many members a company has. Other states consider an LLC's income or the members' distributional share when deciding how to tax the company.

Failing to pay a franchise tax can lead to severe penalties for an LLC, including dissolution.

Property taxes

If your LLC owns or uses property, you may be subject to property taxes. The three types of property that can be taxed include the following:

  • Real property, which consists of land as well as structures, fixtures, buildings, and other improvements on that land
  • Tangible personal property, which includes physical objects that one can own, such as vehicles, office equipment, and machinery
  • Intangible personal property, which has no physical substance but instead represents particular value — for most businesses, this is their “good will”

All states tax real property, and many tax tangible property. A smaller number tax intangible property as well.

Sales and Use Taxes

Most states impose sales and use taxes, but the amount of tax and the types of products and services taxed vary widely. Sales tax is imposed on the gross amount of certain transactions, such as the retail sale of tangible property. Use tax is imposed on the consumption, storage, or use of tangible property which isn't otherwise subject to sales tax.

Issues surrounding use tax often come up when someone purchases a “big ticket” item in one state and uses it in another state.

The rate for use tax and sales tax is the same. While consumers pay sales and use taxes, retailers are responsible for collecting the taxes and paying the collected amount to the state. It doesn't matter what business type the retailer is, i.e., sole proprietor, LLC, or corporation. Sellers are responsible for collecting and paying appropriate taxes.

In general, retailers must obtain necessary permits or licenses before being allowed to do business in a state. This makes it easier for the state to identify who's responsible for various taxes.

To keep your company running smoothly and ensure you meet all tax requirements, you'll probably want to hire a tax professional to handle this aspect of your business. Failing to meet requirements can be costly, so it's often worth having an expert take care of your taxes so that you can focus on running your company.

Recordkeeping and Best Practices for Compliance

Accurate and comprehensive recordkeeping is essential for LLC tax reporting. To stay compliant:

  • Maintain separate business and personal finances to preserve liability protection.
  • Keep detailed records of income, expenses, payroll, and tax deposits.
  • Use accounting software or hire a tax professional to ensure accurate filings.
  • Monitor state-specific tax deadlines and requirements, which can vary significantly.

Proactively organizing your LLC’s tax documentation helps minimize errors, reduces audit risk, and ensures you meet all federal, state, and local obligations.

Frequently Asked Questions

  1. How do I report income for a single-member LLC?
    You report business income and expenses on Schedule C (Form 1040) and pay self-employment tax using Schedule SE.
  2. Do all LLCs need to file a BOI report?
    Most do. LLCs formed or registered in the U.S. must file with FinCEN unless they qualify for a specific exemption under the Corporate Transparency Act.
  3. What happens if my LLC doesn’t file required reports?
    Failure to file tax returns, BOI reports, or state annual reports can lead to fines, loss of good standing, and even dissolution of the LLC.
  4. Can my LLC be taxed as a corporation?
    Yes. You can elect C-corp or S-corp status by filing Form 8832 or Form 2553, respectively, which may offer tax advantages depending on your situation.
  5. Do I need to file state taxes if my LLC has no income?
    In most states, yes. Many still require an annual report, franchise tax, or minimum tax payment regardless of income level.

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