Do you want to file income tax for LLC? If so, we will enlighten you on how to file taxes for LLC for single-member LLC, multi-member LLC, and corporations.
If you have organized your business as a Limited Liability Company (LLC) then it can be taxed as partnership, corporation, or sole proprietorship. An LLC is not considered as a separate tax entity (for example LLC Corporation). Internal Revenue Service (IRS) considers it a pass-through entity like sole proprietorship and partnership.
Moreover, using an LLC is quite flexible for small business owners as they have the capability to change the tax status. However, for some users, filing tax for LLC seems to be confusing. Thus, we are guiding you on how to file business taxes for LLC for different types of business.
- What Are the Ways to File Tax for LLC?
- How to File Taxes for Sole Proprietorship LLC?
- How to File Taxes for a Multi-Member LLC?
- How to File Tax for C Corporation and S Corporation?
What Are the Ways to File Tax for LLC?
Before learning how to file income tax return for LLC, understand the concept of how IRS taxes your business in different forms.
Internal Revenue Service (IRS) has not set any standard classification for LLC as it is a new kind of business entity. Although, this does not imply that you cannot file tax for LLC.
As per the IRS, if the LLC has one member, it will be treated as a sole proprietorship. On the other hand, if there are two or more two members then the IRS will consider it as a common partnership.
Having said that, if you want to file your LLC as a corporation, you have the ability to change the tax status. However, you need to file a form with the IRS.
Now, lets’ know how to file taxes for single-member LLC, multi-member LLC, estimated taxes, self-employed taxes, and S corporation/C corporation.
File Taxes for Different LLC Forms
As stated earlier, you can file taxes based on the type of business form you are using or it is based on the number of members in that business. Here, we will show you how to file taxes for LLC Partnership, Sole Proprietorship, & Corporation (including C Corporation and S Corporation).
How to File Taxes for Sole Proprietorship LLC?
For a single member, LLC is taxed as a sole proprietorship which reports its expenses and income on the personal income tax return (on Schedule C). Then, the members are required to mention the profit and losses on Form 1040, U.S. (on the income section).
Since LLC is not considered for income tax purposes so when your LLC is taxed as a single-member or sole proprietorship then it will be considered as a disregarded entity. However, it should be noted that such entities are only disregarded for income tax purposes which means you can still maintain your limited liability protection.
How to File Taxes for a Multi-Member LLC?
LLC with two or more members is treated as a partnership. It means the income of multi-member LLC will flow through to the partners themselves which should be reported on the personal tax returns.
To file taxes for an LLC partnership, you need to file a 1065 form (informational tax return). It reports the income and expenses of your partnership.
Along with this, LLC releases a Schedule K-1 to each of its members in order to display the share of the profit of members. Also, the operating agreement of LCC is required to list the percentage share of each member including profits and losses.
Thereafter, LLC members report the share of profit and loss of their personal tax returns. This can be shared on Schedule E. It should be noted that even if the partners leave the profits in the business, the members still have to report and pay the taxes on the whole share of profit.
Estimated Taxes and Self-Employed Taxes
LLC members who are taxed as common partnerships or sole proprietorships are treated like self-employed for tax purposes. For example, if you work for the employer then the employer has to pay half of the Medicare taxes and Social Security and the other half will be paid by you.
But, when you are an independent contractor then you are required to pay the whole amount. However, you are permitted to deduct half of the tax from the income on the annual tax. This slightly balances the impact of your self-employment tax.
Besides that, you have to file Self Employment Tax and Schedule SE with the income tax return. By doing so, you can report and calculate self-employment taxes. And, if you are self-employed then you must create an estimated payment of your taxes and the personal income tax (quarterly) during the year. In case of not doing so, you may be charged with penalties.
How to File Tax for C Corporation and S Corporation?
By using form 8832 (Entity Classification Election), you can organize your LLC as a corporation with the IRS. If required, LLC can also file for S Corporation.
Note: Using the Corporation LLC can be a bit complicated. It is suggested to get in touch with your accountant before you select to be taxed as LLC Corporation.
There are a few reasons that LLC may select corporate taxation you should know:
- You choose to be taxed as a corporation when you are planning to leave a large amount in your business every year. You can make such decisions due to finance expansion or other purposes.
- When you obtain greater profits than the amount, your employees or owner make a salary. Also, if you prefer to reduce the impact of self-employment taxes then choosing corporation taxes can be your move.
If you have changed your tax status to C Corporation then you need to file the corporation tax return every year. The sharers can also report the dividends and salary that they receive through their personal tax returns.
On the other hand, if your LLC has been taxed as S Corporation then you need to follow the procedure same as the partnership. All you have to do is file the information return and provide a Schedule K-1 form while showing the share of the profit of members.
Thereafter, LLC members report the share of profit and loss of their personal tax returns. This can be shared on Schedule E. This is the whole procedure of how to file business taxes for LLC for different types of business.
How Much Does It Cost to File Taxes for LLC?
You must be wondering how much LLC owners need to pay for the state taxes or additional fees. LLC owners are expected to pay the taxes on the personal tax returns to the state. However, LLC does not pay any state tax itself. Let’s know more about additional taxes and annual fees in states.
States Additional Taxes
Some states charge an LLC a tax that depends on how much income the LLC makes as well as the income tax that the owner pays. For example, if LLC is earning up to $250,000 per year then California imposes a tax that ranges between $900 to $11,000.
States Annual Fees
There are a few states that charge LLC fees annually. This fee is not related to income; this is known as franchise tax which means renewal fee or annual registration fee. Most states charge $100 as an annual fee whereas California charges $800 as minimum franchise tax in a year.
It should be noted that the tax can be waived in the first year of LLC (if formed in 2021, 2022, and 2023).
Also, before making the LLC, one should check if your state imposes a separate tax or fee for LLC. To know about this, you can visit the website of the state’s secretary, department of tax, or department of corporations.
In a Nutshell
LLC gives you the flexibility to change the tax status of your business. You can easily decide how you want the IRS to tax your business. Hence, IRS allows LLC owners to operate their business as sole-proprietorship, partnership, corporate tax rules.
In this guide, we have taught you how to file taxes for LLC Partnership, Sole Proprietorship, & Corporation (including C Corporation and S Corporation). In addition, we discussed the annual fees or additional taxes in states.
Besides filing LLC taxes, learn how to file taxes for LLC with no income. Remember even if your business had no activity in earlier years, you still should file taxes for LLC.