Key Takeaways

  • An LLC tax return depends on how the business is classified for tax purposes—sole proprietorship, partnership, or corporation.
  • Single-member LLCs generally file using Schedule C, while multi-member LLCs must file Form 1065 and issue Schedule K-1s to members.
  • LLCs can elect corporate taxation by filing Form 8832 or Form 2553 (for S Corp status).
  • Owners may need to pay self-employment taxes and make quarterly estimated payments.
  • Understanding federal, state, and local filing requirements helps avoid penalties and maximize deductions.
  • LLCs must also consider state filing fees, franchise taxes, and deadlines that vary by jurisdiction.

LLC Tax Return

The LLC tax return could refer to a variety of tax forms that have to be filed to the IRS when operating this legal entity. Upon officially forming an LLC, your business entity could be considered a partnership by the IRS for income tax only.

If you are the only one who owns the LLC, you are required to pay tax on your profits the way a sole proprietor would. There are different regulations regarding tax filing for partnerships and sole proprietorships. If you want your LLC to be taxed the same way a corporation is, you’ll have to submit IRS Form 8832 to elect corporate tax. For five years after electing this, you will not be able to change the designation of your LLC.

Understanding How the IRS Classifies LLCs

The IRS does not recognize LLCs as separate tax entities. Instead, an LLC is taxed based on the number of members and elections made by the business. By default, a single-member LLC is taxed as a disregarded entity (sole proprietorship), while a multi-member LLC is treated as a partnership. However, LLCs can choose to be taxed as either a C corporation or an S corporation by filing the appropriate forms with the IRS.

This flexibility allows business owners to select a structure that aligns with their financial goals—whether to simplify tax reporting, retain profits, or take advantage of lower corporate tax rates.

Requirements of Filing for Partnership

When an LLC is treated as a partnership, the LLC isn’t actually responsible for paying tax on business profits. Instead, IRS Form 1065 needs to be filed for annual partnership tax returns. Any income, as well as deductions and credits, should be reported by each owner. The purpose of the tax return is solely for information. The amount of profit reported every year must be included on a Schedule K-1.

Say you and someone else decide to form an LLC and run the business as a partnership. The business earns $100,000 in one year yet had $60,000 in business expenses that could be deducted. You and your business partner would each file a Schedule K-1, listing $50,000 in earnings and $30,000 in deductions. After filing the Schedule K-1, these numbers must be reported on personal income tax returns. The LLC will actually cause your personal taxable income to go up by $20,000. For example, if you and a friend create an LLC to run a business that earns $100,000 and has $60,000 of deductible business expenses, then each of you will receive a Schedule K-1 with $50,000 of earnings and $30,000 of deductions. Both of you must then report these figures on your personal income tax returns.

Requirements for Corporate Filing

If you elect corporate tax for your LLC, the business is seen as an individual taxpayer by the IRS.  In this case, your income and deductions must be reported by the LLC on Form 1120 every year, meeting the deadline and paying the correct amount of income tax due.

If for some reason the LLC does not pay the income tax or file the return on time, you aren’t personally liable. The downside to being taxed as a corporation is that your business profits will be taxed twice. Your LLC is taxed the first time when a corporate tax return is filed and the second tax occurs when the LLC owners get their dividends. Any owners of the LLC have to report their dividends on the personal 1040 forms and pay the appropriate amount of tax.

Requirements for Sole Proprietor Filing

The IRS considers your LLC a totally separate owner if you decide to be taxed as a sole proprietor. In this arrangement, any taxes and filings due become your personal responsibility. You need to accompany your personal income tax return with a Schedule C. This document reports earnings and deductions caused by business operations.

Filing Deadlines and Estimated Tax Payments

For LLCs taxed as sole proprietorships or partnerships, income taxes are typically reported on the owner’s individual return by April 15 each year. If you expect to owe $1,000 or more in taxes, you must make quarterly estimated tax payments to avoid IRS penalties. These payments are due on:

  • April 15 (for income earned January–March)
  • June 15 (April–May)
  • September 15 (June–August)
  • January 15 of the following year (September–December)

Corporate LLCs must follow the IRS corporate tax calendar, typically filing Form 1120 by April 15 or the 15th day of the fourth month after the end of their fiscal year.

LLC Owners and Their Tax Returns

An LLC is often referred to as a pass-through entity. This is because LLCs are not corporations (corporations are separate tax entities). Profits and losses incurred by the LLC go directly to (or pass though) the business entity and go straight to the owners. The owner then reports their figures on a personal tax return. Although LLCs must pay annual state tax, they do not have to pay federal income tax. Based on how many owners the LLC has, the IRS will regard your business as either a sole proprietorship or partnership.

Self-Employment Tax Obligations

Members of LLCs that are taxed as partnerships or sole proprietorships are considered self-employed. This means they are responsible for paying both the employer and employee portions of Social Security and Medicare taxes, known collectively as self-employment taxes.

LLC members must report self-employment income using Schedule SE and pay 15.3% in combined contributions. However, half of that amount is deductible on the member’s individual tax return, reducing taxable income.

LLCs Owned by One Person

If an LLC is owned by only one person, the IRS treats the business entity as a sole proprietorship. The LLC does not pay taxes or file a return. Instead, the owner of the LLC must report all of the profits and losses of the LLC on Schedule C and file it with their 1040 tax return. You will also probably have to pay income tax on any money that you leave in your business bank account for future business spending.

LLCS Owned by More Than One Person

Any LLC that is owned by two people is treated as a partnership by the IRS. Just as single-owned LLCs don’t pay business income tax, neither do LLCs owned by two people.

The business partners report their profit on their own personal income tax returns along with Schedule E. When LLC owners share the profits and losses, this is called a “distributive share”. This arrangement should be included in the LLC’s operating agreement. Many operating agreements that owners create state that the distributive share is in direct relation to each owner’s interest in that business.

As an example, if one partner owns 70 percent of the company and the other partner owns 30 percent of the company, the first partner will keep 70 percent of the profits and losses and the second partner receives 30 percent of profits and losses. In the event that someone wants to distribute profits and losses without making those distributions match up the percentage of each person’s involvement in the business, this arrangement is called a “special allocation”.

When it comes to taxes, even if the members don’t receive all of their shares, the IRS still taxes them on their entire distributive share.

Recordkeeping and Supporting Documentation

To prepare an accurate LLC tax return, owners should maintain detailed records throughout the year. This includes:

  • Income and sales records
  • Receipts for deductible expenses
  • Payroll documentation (if applicable)
  • Bank statements and financial reports
  • Capital contributions and distributions

Good recordkeeping not only supports deductions but also simplifies filing Form 1065 or Schedule C. The IRS may request these records in the event of an audit, so accuracy and organization are key.

The Benefits of Corporate Taxation

Corporate taxation might benefit you if you decide to retain earnings, (a.k.a. set aside some of your LLC’s profits). Any LLC can elect to be taxed as a corporation. Submit IRS Form 8832 Entity Classification Election and check the corporate tax treatment box on the document. The first $75,000 of business profits are taxed at a lower rate when they are taxed as a corporation instead of an individual. This can save you a substantial amount of money on your taxes. When you decide to be taxed as a corporation, your LLC can provide members and employees with stock options, stock ownership plans, and tax benefits.

Electing S Corporation Status

An LLC can elect to be taxed as an S corporation by filing Form 2553. This classification can help reduce self-employment taxes, as members who actively work in the business can receive part of their income as a salary (subject to payroll tax) and the rest as dividends (which are not).

However, S Corp election comes with additional requirements—such as running payroll, filing Form 1120S, and issuing Schedule K-1 forms to shareholders. It is best suited for LLCs generating consistent profits that exceed reasonable compensation for owners.

Basics of Paying Income Taxes

An LLC owner is considered a self-employed individual and therefore does not have to pay tax withholding. Instead, the owner has to set aside money to pay taxes on their share of profits. Quarterly payments need to be made to the IRS every April, June, September, and Jan. 15.

Avoiding Common LLC Tax Filing Mistakes

Several common errors can delay processing or result in penalties:

  • Missing deadlines or incorrect due dates for Form 1065 or 1120S
  • Mismatched income reporting between LLC and members’ personal returns
  • Improper deductions or poor recordkeeping
  • Failing to make quarterly estimated payments
  • Neglecting to update elections after structural changes

Double-checking member information, verifying EIN accuracy, and maintaining up-to-date records can prevent many of these issues.

Basics of Self-Employment Taxes

Because LLC owners are self-employed, they do not receive paychecks that are subject to tax for Social Security and Medicare. Instead, self-employment taxes need to be paid to the IRS, and those taxes will cover contributions to the aforementioned systems. If an owner or member of the LLC is not active (meaning they might have invested in the company but don’t have anything to do with management), might not be required to pay taxes on any share of the profits that they receive. Although tax regulations can be confusing, it is a safe bet to assume that you are an active member or owner of the LLC, you will be paying self-employment tax on your profits. You’ll need to report you tax amount due on Schedule SE and submit this form annually with your tax return.

Expenses and Deductions

A sizable chunk of your business expenses will not be taxed. These expenses can be written off or deducted, thus significantly reducing the amount of taxes that you owe to the IRS. Examples of deductible expenses are business travel costs, equipment and furniture purchases, start-up costs, and marketing costs.

Common Deductible LLC Expenses

LLCs can deduct most ordinary and necessary business expenses. Typical deductions include:

  • Rent or lease payments for office space
  • Utilities and business insurance
  • Advertising and marketing costs
  • Professional fees (legal, accounting, or consulting)
  • Office supplies, computers, and software
  • Employee wages and benefits

Start-up costs and organizational expenses can also be partially deducted in the first year and amortized over time.

State Taxes and Fees

LLC owners must pay taxes on their personal return, even though the LLC doesn’t owe state taxes. However, there are some states that require LLCs to pay a base tax if there are profits of $250,000 or more in one year. The taxes could be anything from $900 to $11,000. In certain states, you also have to pay a yearly LLC fee.

Franchise Taxes and Annual Reporting Requirements

Many states require LLCs to pay franchise or privilege taxes, regardless of profitability. For example, California imposes an $800 annual minimum franchise tax, while Delaware, Texas, and Tennessee assess varying franchise tax rates or annual fees.

Additionally, most states require LLCs to file an annual report or statement of information, typically accompanied by a filing fee. Failure to comply can lead to late penalties or suspension of the LLC’s good standing with the state.

Know Which Returns to File

What form an LLC will file is contingent on a variety of circumstances. If the LLC is owned by only one person, Form 1040 must be filled out and accompanied with either Schedule C, E, or F. For LLCs owned by several people as well as for partnerships, Form 1065 needs to be filled out. For S Corporations, file Form 112S and for C Corporations, file Form 1120.  If you still need assistance figuring out which tax forms to report profits and losses on, take a look at the IRS Publication 3402 Tax Issues for Limited Liability Companies for more information.

How to File Your LLC Tax Return Online

Many LLCs now file electronically using tax preparation software or professional services. The IRS encourages e-filing to reduce errors and expedite processing. To e-file your LLC tax return, you’ll need:

  1. The LLC’s Employer Identification Number (EIN)
  2. Prior-year tax return (for carryover data)
  3. Member information and ownership percentages
  4. Documentation of income and deductions

Some states also require separate e-filing of state business returns, which may differ from federal requirements. Working with a tax professional ensures compliance with both federal and state laws.

Single-Member LLCs

In the case that the single member of the LLC is a human being, all profits and expenses that went through the LLC will be reported on Form 1040 and Schedule C, E, or F. But if the single member of the LLC is a corporation, all business profits and expenses are reported on the corporation’s tax return. This is usually reported on Form 1120 or Form 1120S. A single member LLC is not permitted to file a partnership return. 

Single-member LLCs may not file a partnership return. If any LLC has two members, a partnership return is filed (Form 1065). If you would prefer to file as a corporation, you need to submit Form 8832 (however, this is not necessary if you are going to file as a partnership). Keep in mind that whatever tax return you decide to file, you have to continue filing that same return every year instead of switching tax returns. For an LLC that is treated as a sole proprietor, include Schedule C, Profit or Loss from Business with your filing of Form 1040. As a sole proprietorship, you are required to pay federal income taxes on any profits and losses made through your LLC. Include these figures on your personal income tax return’s Schedule C portion. If you make more than $400 through your LLC, you must file Schedule C. If you receive any sort of specialty income (i.e. fishing or farming), file either Schedule E, F, or J instead of Schedule C.

Partnership

If your LLC is a partnership, submit IRS Form 1065, U.S. Return of Partnership Income. You must also give all other LLC members or owners a Schedule K-1 to fill out and submit. On this particular form, each owner must include their share of profit on their own personal income tax return. The IRS Form 1065 is a return used for informational purpose. It makes it easier to prepare Schedule K-1 and send the form to each owner. The K-1 is essentially the W-2 of partnerships.

Corporation

If your LLC is being taxed as a corporation, you will file IRS Form 1120, US Corporation Income Tax Return. And if you have decided to be taxed as an S corporation specifically, you will need to file Form 1120S. Some LLCs elect to be treated as an S corporation because it is yet another way to be considered a pass-through entity by the IRS.  You will also need to distribute Schedule K-1 to all LLC members and owners if you elect to be treated as an S corporation.

You need each owner to submit this form because the S corporation doesn’t actually file its own taxes. The form that business owners must file if they elect sole proprietorship treatment for their LLC is Schedule SE, Self-Employment Tax. For any LLC that has employees, Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return needs to be filed along with Form 941, Employer's Quarterly Federal Tax Return, or Form 944, Employer’s Annual Federal Tax Return.

Frequently Asked Questions

  1. Do LLCs have to file a tax return every year?
    Yes. Even if an LLC has no income, it must file the appropriate return (Form 1065, 1120, or Schedule C) to remain compliant.
  2. What tax forms do I need for my LLC?
    Single-member LLCs use Schedule C, multi-member LLCs use Form 1065, and LLCs taxed as corporations use Form 1120 or 1120S.
  3. Can an LLC deduct start-up expenses?
    Yes. Up to $5,000 in start-up costs and $5,000 in organizational costs may be deducted in the first year, with the rest amortized over 15 years.
  4. How can I reduce taxes for my LLC?
    LLCs can lower taxes by electing S Corp status, claiming all eligible deductions, and making retirement contributions.
  5. When are LLC tax payments due?
    Estimated quarterly payments are due April 15, June 15, September 15, and January 15 of the following year.

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