What Taxes Do LLCs Pay? Tax Types and Requirements
Tax season is upon us once again. In this article, we’ll talk about taxes LLCs are required to pay and offer tips to file your tax return. Knowing which forms to file and when they are due will prevent costly penalties and keep your business in good standing with state and federal governments. Read on to find out what types of tax LLCs pay. We’ll also link to our tax and accounting partners who can file your LLC taxes for you.
LLC Tax Structure
If you have started an LLC, you probably already know your LLC type – whether you’re registered as a Disregarded Entity, a Partnership, or a Corporation (yes, LLCs can be taxed as Corporations). If you have not already started your LLC, these terms may be unfamiliar. In general, the LLC business type is possibly the most flexible when it comes to taxation. Your LLC status determines how you and your business are taxed in one of two ways: either pass-through or as a corporate tax structure.
4 LLC Tax Types
- Disregarded Entity LLC Tax Structure – Pass-through Taxation. All Single-Member LLCs are taxed as disregarded entities unless another status is elected. Since the LLC itself does not file a tax return, all profits and losses must be submitted on Schedule C which is attached to your personal 1040 tax return. Pass-through taxation means that the LLC itself does not pay taxes. Instead, its members report their share of profits or losses on their personal income tax returns.
- Partnership LLC Tax Structure – Pass-through Taxation. The S-Corp structure also allows for taxes to pass through to members, so the business doesn’t file company tax returns. Multiple owners of an LLC are generally taxed as partnerships. Just like the single-member LLCs, all profits and losses are recorded on Form 1040 personal tax returns and Schedule E based on contribution and/or terms outlined in the company operating agreement. Gains, losses, and expenses must be submitted on Schedule E by each member when personal tax returns are filed.
- C-Corp Tax Structure – Double Taxation. Traditional C-Corps are usually reserved for large or complex businesses and must file returns at both corporate and individual levels. The company’s net income is taxed at the corporate level before it passes through to the LLC’s members. This particular business type is fairly unpopular among small businesses.
- S-Corp Tax Structure – Pass-through Taxation. Like disregarded entities and partnerships, S-corporations do not pay federal income tax. Any distributed profits are subject to individual income tax. S-Corps are required to file forms 1120S with a schedule K-1. Estimated tax payments are recorded on form 1120-W. If you are a shareholder in the company, you may also have to file forms 1040 or 1040-SR and also a Schedule E. If you’re required to file these forms, form 1040-ES is used for shareholder filings.
Undistributed profits – also called Retained Earnings – are not taxed until they are distributed, so there’s no double-taxation like the C-Corp.
Follow our Business Tax Guide for more information and other ongoing requirements.
LLC Tax Filing Requirements
Federal Taxes: Just as you would file your individual tax return with the IRS each year, you’re required to complete and add Schedule C to your personal return. The additional form reports your LLC’s profit or loss, expenses, and income for the previous year. The due date is usually around April 15th each year, but holidays and special circumstances can affect that due date. The IRS offers an Online Tax Calendar along with specific federal tax due dates and forms to file your LLC tax returns.
Employment Taxes: If you have hired yourself or anyone else as an employee, you must pay employment taxes based on annual revenues. How much money you’re making also determines whether you must file quarterly or annually with the IRS.
Estimated Taxes: Also based on how much money your company is making, you could be required to pay estimated tax deposits in advance of filing your annual tax returns. Quarterly tax deposits are due following the last day of each quarter. So if you run your business on a fiscal calendar year (January – December), your estimated tax payments would be due by April 15th, June 15th, September 15th, and January 15th of the next year.
State and Local Taxes: State taxes vary depending on where your business is located. Some states don’t have any additional tax requirements while other states can tax you more at the state level than you’ll pay in federal income tax. You can generally anticipate paying sales tax and possibly state income and franchise taxes also. One of the first steps in starting your LLC is to register with your state’s department of taxation and they’re your best source for all the information, forms, and due dates you’ll need to file your state tax returns.
State Annual Reports: Annual reports are filed separately from tax returns, but some states consider the report a tax return. Payment for annual report fees is also paid separately from other local, state, and federal taxes. If your state requires annual reports, they are usually due on your company’s anniversary date each year.
Get Help from Tax and Accounting Experts
Since we’re not tax or legal professionals, we’re not allowed to offer tax or legal advice. We know how important it is to have good accounting and tax practices for your business, so we put together a network of recommended tax, accounting, and bookkeeping providers to help you manage your finances and help with tax returns.
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Conclusion
What taxes do LLCs pay? It depends on your LLC business structure. Single-member (or Disregarded Entities) and partnership LLCs pay individual income tax that is recorded on individual tax returns, but the company itself has no tax burden. The S-Corp business type also affords taxation at the personal level, so no corporate tax return is filed. If you run a C-Corp LLC, all profits will be taxed at both the corporate and personal levels. Double-taxation is why most LLCs choose single-member, partnership, or S-Corp business types.
In addition to paying federal income tax, you may also have to pay federal and state employment taxes, and possibly franchise taxes. Many states require an Annual Report filing which they consider a tax return. Depending on the amount of revenue your business generates, you may be required to file more frequent returns and even pay estimated taxes each quarter. Taxation is determined by the federal government and your state, so you should follow up with your state’s taxation department for due dates, forms, and information specific to where your company operates.
If you make a better entrepreneur than a tax professional, we recommend speaking with an accountant or tax firm to manage your LLC taxes. Missing deadlines can cost loads of money and even threaten your company’s good standing with your state government. Taking advantage of our preferred accounting partners can save time, money, and free you from having to file on your own.MyCompanyWorks LLC offers fast and affordable online LLC and Corporation formation services. Our support team is standing by to start your company. Form your LLC online now or reach out for assistance. We look forward to hearing from you!