LLC Taxes in NC: Everything You Need To Know
LLC taxes in NC are the taxes that a limited liability company must pay to the state of North Carolina.3 min read
2. Employer Taxes
3. Sales Tax
Updated November 2, 2020:
LLC taxes in NC are the taxes that a limited liability company must pay to the state of North Carolina. At the federal level, an LLC is a pass-through entity, which allows it to avoid the double taxation that affects corporations. An LLC also has the flexibility to be treated as a partnership, corporation, sole proprietor, or S corp by the IRS.
With this tax structure, the LLC's profits and losses are reported on each owner's individual income tax return. The LLC itself does not pay corporate income tax. Although some states require the LLC to pay income tax at the corporate level, this is not the case in NC.
To choose corporate tax treatment for your LLC, file IRS Form 2553. This requires the LLC to file a separate federal income tax return each year. Corporations are also taxed by North Carolina at a rate of 5 percent of annual income and must pay a franchise tax each year. File Form CD-405 with the Department of Revenue.
An LLC that has employees must pay employer taxes, some of which are owed to the IRS and some of which are to the state. When you start an LLC, you must register for a free employer identification number (EIN) with the federal tax bureau.
At the state level, employee income tax must be withheld from their checks and remitted to the NC Department of Revenue. File Form NC-BR to register as an employer, then use Form NC-5 to file withholding taxes every month or quarter as required. Tax withholding is reconciled annually by filing Form NC-3.
You must register with the Division of Employment Security to pay state unemployment insurance (UI) taxes. This can be done online or on paper with Form NCUI 604. Wages must be reported and taxes paid quarterly using Form NCUI 101.
If you're selling products to North Carolina customers, you must register with the Department of Revenue to collect and remit sales tax. This can be done online or on paper using Form NC-BR, after which you will receive a Certificate of Registration. Sales tax must be paid either quarterly or monthly.
Some products that are subject to state sales tax include the following:
- Physical items.
- Digital items, including downloaded movies and albums.
Sales tax is not charged on gas, groceries, and prescription drugs. Some services are also taxable; the DOR offers a complete list of these on its website.
If you sell any items that are subject to sales tax, you need to register for a seller's permit by providing your Employer Identification Number (EIN), NC Secretary of State number, business name and contact information, names and contact information for responsible parties, and information about goods for purchase. Resold items require a reseller's permit but are not subject to sales tax.
To prevent your business from audits and fines, make sure you correctly calculate the sales tax rate on each item you sell, considering both store sales and in-state and out-of-state sales.
Store sales are based on your business location. For example, if your store is in Durham, each item is subject to 7 percent sales tax, found by combining Durham's city rate of 2.25 percent with the state rate of 4.75 percent.
Online sales and other long-distance sales are taxed based on the buyer's address, accounting for city, county, and state sales taxes. For example, if your store is based in Asheville and you sell an item to a customer in Cary, the sales tax rate would be based on the Cary rates.
Sales to customers outside the state are only subject to sales tax in locations where your business has a nexus. A nexus is a physical location and can consist of:
- A drop-shipping location.
- A marketing affiliate.
- A remote employee.
- An office, store, or warehouse.
- A booth at an event or festival.
If your business collects more than $100 in sales tax on a monthly basis, you must file monthly sales tax returns. Other businesses can file quarterly if approved by the secretary of state. You must file even if you collected no sales tax in a given period.
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