Single Member LLC Florida Taxes: Everything You Need to Know
Single member LLC Florida taxes depends on whether you opt for your limited liability company to be taxed as a sole proprietorship or an S corporation.3 min read
2. Florida LLC State Income Tax
3. Benefits of Forming a Florida LLC
4. LLC Disadvantages
Updated July 7, 2020
Single member LLC Florida taxes depends on whether you opt for your limited liability company to be taxed as a sole proprietorship or an S corporation. Each has benefits and drawbacks depending on the type of business you own and other factors.
Federal Income Tax for LLCs
The LLCs treatment under Florida law depends on its federal tax treatment. An LLC taxed as a C or an S corporation is treated as a corporation by Florida law, and the members are considered employees if they perform services for the business. Each member who does so must be reported on the state's Employer's Quarterly Report.
When an LLC is taxed as a partnership, members are not considered employees in Florida and their wages are not taxed by the state. If the LLC has other employees, it must pay state wage tax, unless wages are paid to an immediate family member (parent, child, or spouse).
LLCs treated as sole proprietors at the federal level receive the same treatment from Florida. The owner is not considered an employee and his wages are not taxable by the state.
Florida LLC State Income Tax
Although LLCs do not pay federal income tax, if you opt to be taxed as an S corporation at the federal level you will be subject to state income tax per the Florida Income Tax Code. This also applies to LLCs classified as partnerships that have at least one corporate owner. These businesses must file Form F-1065.
This does not apply to single-member LLCs that are treated as disregarded entities at the federal level. This type of business must report its income to the state using Form F-1120. Income and losses are reported on the owner's individual income tax return.
All businesses that conduct business, exist within, or receive income from Florida must pay the state's corporate income/franchise tax. This is adjusted based on the percentage of business conducted in Florida compared to the percentage in other states and considers the company's payroll, sales, property, and assets.
Corporations that do business outside Florida adjust their federal income using a weighted average formula that apportions 50 percent to sales and 25 percent each to payroll and property. Exemptions are then subtracted to arrive at net income in Florida. The tax rate on this income is 5.5 percent. For example, if your business's net income in Florida is $50,000, it will be taxed $2,750.
Keep in mind that you can receive tax credits for providing salaries to Florida residents, paying other taxes and assessments, and making certain investments in your business.
Benefits of Forming a Florida LLC
To enjoy statutory protection for your Florida business, you must establish an LLC. Advantages of this business entity include:
- Avoidance of corporate federal income tax at both the business and individual levels, since an LLC is subject only to individual income tax
- Limited liability protection from business debts and financial obligation
- The flexibility to be taxed as either a partnership, sole proprietorship, C corporation, or S corporation
- The ability to be owned by an individual or a business
- No annual shareholder meeting requirements
- No required board of directors
- No need to discontinue the LLC after the owners die or otherwise leave the business
- Little required administration compared to other business entities
- The ability to assign membership interests without transferring title
Downsides of forming an LLC may include:
- Self-employment tax, although this can be avoided by opting for S corporation tax treatment
- Termination of the LLC if more than 50 percent of its capital and/or profit interests are exchanged or sold within 12 months
- The inability to use the cash method of accounting if more than 35 percent of losses are allocated to those who are not managers
- The inability to take advantage of tax-free reorganization, Section 1244 stock issuance, and incentive stock options if the LLC is treated as a partnership
- No uniformity in legal requirements from state to state
- Lower discounts for estate planning than for a corporation (15 percent compared to up to 40 percent)
- Tax recognition on appreciated assets if you convert an existing business to an LLC
If you need help with filing Florida taxes for your single-member LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.