A Guide to Tax Filing Requirements for LLCs 

Are you an LLC owner drowning in random information about tax filing for an LLC? Are you looking for ways to maximize your deductions but end up confused about the types of deductions you can claim?

Well, if you answered yes to both of these questions, this guide is perfect for you. You can find all the information about federal tax filings, state tax filings, employment taxes, and self-employment taxes. We also discuss the various types of forms you would require for filing taxes and much more.

So, let’s get started!

What Is an LLC and How Is It Taxed?

LLC stands for Limited Liability Company and is one of the most popular business structures for entrepreneurs who wish to start a business that keeps their assets safe from business debts and liabilities. You can start an LLC from outside the US or from any part of the world as well. This means that LLC owners can keep their assets separate from business entities. 

Thus, the debts and assets of the business remain separate from the personal assets and debts. The LLC owners are called members, and LLCs can be owned by foreign entities, foreigners, corporations, individuals, and even other LLCs. 

LLCs don’t have to pay taxes on their profits directly and their regulations vary from state to state. The LLC profits and losses are passed through to the owners and reported on their tax returns.

LLCs are formal business arrangements and are much easier to set up than a corporation. They offer more flexibility to their owners in terms of asset protection and liability management.

As an LLC owner, you have to file the Articles of Organization with the state and can report your federal taxes on your personal returns. You can also choose to get classified as a corporation for tax purposes.

In case of frauds or LLC failing to meet the legal and reporting requirements, creditors can go after the owners.

Finally, LLCs are completely different from ULCs or Unlimited Liability Corporations, which are corporate structures allowed in certain countries. LLCs are taxed for federal obligations, state obligations, payroll taxes, sales taxes, etc., all of which are discussed below.

Federal Tax Filing Requirements

LLCs can have various types of ownership structures, such as single-member LLCs, nonprofit LLCs, domestic LLCs, foreign LLCs, etc. The federal and state tax filing requirements can vary across all of these organizations.

Below, we are sharing forms required for the three most common types of LLCs – single-member LLCs, multi-member LLCs, and LLCs as corporations.

Single-member LLCs: Schedule C (Form 1040)

The single-member LLCs need to report their income or loss from the business via Schedule C (Form 1040).

All the latest information, changes, and updates to the Schedule C filings are available on the official IRS website and we recommend checking the webpage before going ahead with the filing to ensure accurate filing. 

The Schedule C form is also used to report the following:

• Expenses and wages you incurred as a statutory employee

• Amounts that are shown in Form 1099, such as Form 1099-K, Form 1099-NEC, and Form 1099-MISC.

• Income and deductions related to certain qualified joint ventures

• The state and local taxes and other filing requirements such as professional fees and business license fees etc. vary from state to state and we recommend that you check with the local government offices for the same. 

The single-member LLC owners have to report the supplemental income and losses via Form 1040 or 1040-SR Schedule E. To report profits and losses from farming, they can use Form 1040 or 1040-SR Schedule F.

By default, the IRS considers the single-member LLCs as “disregarded entities”, which means that the LLC will be ignored by the IRS for tax purposes. All the income and taxes are reported by the owner on their personal tax return via Schedule C.

Check the IRS resources for more information and detailed specifications on single-member LLCs. 

🏦 Filing Deadline: April 15, 2024

Multi-Member LLCs: Form 1065 with Schedule K-1 for each member

The multi-member LLCs are the LLC form of partnership, where multiple members own an LLC. Just like the single-member LLCs the taxes and income of the LLC flow through to the members. 

The members report the income or losses of the business on their personal or individual income tax returns, which involves issuing a Schedule K-1 to each LLC member, detailing out the share of the LLC’s profit for each member. This percentage of shares is also mentioned in the LLC’s operating agreement.

The informational tax return is filed via Form 1065, where all the income and expenses of the LLC are reported. Personally, every member/partner reports their income or loss on Schedule E of their personal tax returns. 

It is mandatory for the members to report and pay tax on their entire share of profit, even if they are not pocketing all the money and investing them in the business. Generally, all the members have to pay the self-employment tax, more details for which can be found on the official IRS website. 

🏦 Filing Deadline: March 15, 2024

LLCs as Corporations: Form 1120 or Form 1120S

If you wish to operate your LLC as a corporation, you have to file Form 8832 and Entity Classification Election with the IRS. Structuring your LLC as a Corporation can lead to double taxation and the overall tax filing becomes more complicated. 

Hence, we recommend consulting a tax consultant before forming your LLC as a corporation and for filing the taxes to maximize your deductions.

However, structuring your LLC as a corporation is not sans benefits. You can leave a significant amount of money in the business every year for expansion, diversification, and other reasons. You can minimize your self-employment taxes, and you can make more profits than other employees or owners make in salaries. 

LLCs as corporations have to file corporate income tax returns via Form 1120. The owners have to report their dividends via Form 1040 of their tax return and the salary & dividends they receive are reported on their personal tax returns. The taxation specifics for S Corps and C Corps vary across different states and should be checked before filing taxes. 

🏦 Filing Deadlines: March 15, 2024, for S Corporations and April 15, 2024, for C Corporations.

State Tax Filing Requirements

The tax filing requirements and types vary across different states, and many states offer a favorable tax structure for LLCs, which makes them the perfect location for registering your LLC. 

State Income Taxes

The majority of states follow the tax classification elected by the limited liability company for federal income taxes. So, if your LLC is registered as a partnership for federal purposes, generally you dont have to pay any state income taxes as the LLC is treated like a partnership for state purposes as well.

State of California

🏦 Filing Deadline: April 15, 2024, for single-member LLCs, and March 15, 2024, for multi-member LLCs.

For instance, in the State of California, the taxation requirements for single-member LLCs are as follows:

• An annual $800 LLC tax for all the entities, even if they are not making any money. 

• An annual LLC fee, which is based on its gross income. 

• Income tax on the net income of LLC via personal tax returns. The tax rates range from 1% to 1.3% in California.

• On the other hand, if your LLC is registered as a corporation in California, the tax requirements will be:

• A minimum $800 annual franchise tax fee, except the first year of operation.

California corporation tax for a C Corp is flat 8.84% and for an S Corp, it is 1.5% on net income.

State of Texas

🏦 Filing Deadline for Franchise Tax: May 15, 2024

In the state of Texas, you dont have to pay any state income tax for corporations or proprietorship/single-member LLCs. However, for the multi-member LLCs, all the members have to pay a 15.3% combined self-employment tax. This includes 2.9% for Medicare and 12.4% for social security.

Franchise Tax 

In many states, such as Texas, the LLCs have to pay a franchise tax, irrespective of them being a disregarded or pass-through entity. A franchise tax is imposed on LLCs operating in specific business domains in exchange for being allowed to do business in a particular state. 

The franchise tax is also called license, excise, privilege, or registration tax/fee in different states. The amount of franchise tax also varies from state to state. Some states charge a flat fee, while others charge the fee based on the number of LLC members, and some might even consider the amount of LLC capital accounts or distributional shares of the LLC members.

Failing to pay the franchise tax on time exposes you to severe penalties, and can also lead to administrative dissolution.

You can also explore our guide to franchise tax in Delaware for a comprehensive understanding.

Self-Employment Taxes

The self-employment tax for LLCs is generally a sum of the Medicare and Social Security taxes and is to be paid by the LLC members. It covers the Social Security and Medicare benefits of self-employed individuals.

Understanding your tax obligations as a single-member LLC is crucial to avoid penalties and strict actions from the administration. All single-member LLCs treated as disregarded entities are considered as sole proprietorships by the IRS. 

This means that the LLC’s income and expenses are reported by the owner on their personal tax return (usually Schedule C). Additionally, they have to pay self-employment taxes on the net profit of the company. 

The multi-member LLCs are classified as a partnership for tax purposes and each member has to pay their self-employment taxes on their share of income. As mentioned earlier, they have to report their share of the LLC’s income and expenses on their tax returns.  

The Social Security Tax is 12.4% on net self-employment income and the Medicare Tax is 2.9% on all net self-employment income, with no maximum income cap. 

As an LLC owner, you are liable for the payment of both the employee and employer portions of the self-employment taxes, which are generally paid quarterly. You can reduce your self-employment tax burden by leveraging the deductions. We recommend getting in touch with a professional tax consultant to maximize your deductions.

How to Calculate and Pay Self-Employment Taxes?

Here is a step-wise process to calculate your self-employment tax.

Calculate your net self-employment income by subtracting all the allowable business expenses from the LLC’s gross income. You can also find this number on your Schedule C.

Calculate the self-employment tax base, which is also your net self-employment income. Your self-employment tax is calculated on the basis of this amount.

Calculate the self-employment tax by multiplying your self-employment tax base by the combined tax rate (12.4% for Social Security + 2.9% for Medicare).

Check your tax obligations specifications, special cases, and other IRS regulations for self-employed taxpayers for a better understanding.

Form 1040 (Schedule SE)

Schedule SE or Form 1040 is used to calculate the tax to be paid on your earnings as a self-employed person. The information you submit in the Schedule SE is used by the Social Security Administration (SSA) to figure out your social security benefits. 

If you have filed Form 4361 or Form 4029 and have got the approval from the IRS, you dont have to file Schedule SE.

Employment Taxes

The employment taxes or payroll taxes comprise of Social Security, Medicare, Federal Unemployment (FUTA), and federal income taxes. The employment taxes can also include Additional Medicare Taxes for eligible employees. 

While some of the employment taxes come from the pockets of the employees, the employers generally withhold and pay these taxes on their employees’ behalf to the IRS.

Requirements for LLCs With Employees

Generally, LLCs are allowed to hire employees but there can be certain specific cases where an LLC owner cannot have employees. For instance, some states only allow lawyers to practice law as sole proprietors or in partnerships.

Single-Member LLCs

A single-member LLC (Disregarded Entity) must apply for an Employer Identification Number (EIN) with the IRS for tax and labor purposes. The owners of such LLCs have to pay employer taxes, such as the Federal Insurance Contribution Act (FICA) and Federal Unemployment Tax (FUTA) taxes. 

LLC Partnerships (Multi-Member LLCs)

These LLCs also need to obtain an EIN from the IRS and get registered with the state and federal authorities. The members have to pay employer taxes such as FUTA and FICA, apart from the self-employment taxes as mentioned above.

LLC Corporations

Likewise, LLC Corporations have to pay employer taxes, such as FUTA, and State Unemployment Tax Act (SUTA) tax. The SUTA taxes are applicable in some states while the FUTA taxes are levied in almost all states.

Necessary Forms for Employment Taxes

Knowing and understanding the different types of forms for filing employment or payroll taxes is essential to ensure accurate filing. Hence, we have covered the essential forms below. 

Form 940

This form is used to report and pay the employer’s annual Federal Unemployment Tax (FUTA) return. As an LLC owner with employees, you have to file this form annually, even if you don’t have any FUTA liabilities.

Some common exemptions from the FUTA tax include very small employers paying yearly wages of less than $1,500 to any employee or employers who didn’t have employees for at least 20 weeks.

Form 941

This form is used to report and pay the employer’s quarterly federal tax returns, such as Social Security and Medicare taxes from employee paychecks. Most business owners with employees file Form 941 quarterly.

Very small businesses with annual income tax liabilities less than $1,000 (or less) inclusive of the withheld income tax from employees, for the entire year are exempted from this filing. These businesses have to file the Form 944 in place of Form 941.

Form 944

Employers use this form to report and pay their annual federal tax returns. This is an alternative to Form 941, which is filed quarterly. This has been put in place to make the annual filing process simpler for very small businesses.

However, if you have previously filed Form 941, or you are a farm/seasonal/household employer, you cannot file Form 944.

Unemployment Tax Responsibilities

If your LLC has employees, you might have additional tax responsibilities in the form of FUTA and SUTA taxes, both of which are unemployment tax acts for federal and state tax purposes.

FUTA Tax

Apart from the existing payroll and federal taxes, the employers have to pay an additional tax called the Federal Unemployment Tax Act (FUTA) tax. The money contributed by the employers under this act is allocated to the state unemployment insurance agencies. This is used for funding unemployment benefits for out-of-work individuals.

The current FUTA tax rate is 6% and applies to employers crossing a set threshold limit for annual employee salary amounts, which is the first $7,000 paid to each employee yearly.

SUTA Tax

Just like the FUTA tax, the states also collect additional additional unemployment taxes from employers under the State Unemployment Tax Act or SUTA. Often termed the SUTA tax, it ranges between 0% and 18.78% of an employee’s wages.

Different states might have different salary thresholds and credits, and we recommend checking the respective official websites for correct filing. 

Now, the interesting thing is that paying the SUTA tax can reduce the tax burden coming from FUTA taxes as the employers can get a tax credit of up to 5.4% of the taxable income if they pay the SUTA taxes timely. 

Generally, the highest tax credit value comes out to be 0.6%, which amounts to a FUTA tax of about $42 per employee. Remember, that if your LLC is exempted from the state unemployment taxes you don’t qualify for the FUTA credit. 

Understanding Sales Taxes for LLCs

LLCs that are involved in the sales of goods or services are liable to pay sales taxes as well, which is collected from its customers and then remitted back to the state or local tax agency. The sales tax regulations for different categories of goods and services vary from state to state. 

In the US, 45 states impose sales tax but Alaska does not levy sales taxes as a state, while some cities in Alaska charge local sales taxes.

Most states have destination-based tax rules, which means the sales taxes are levied as per the regulations of the final delivery location of the product/service. 

Some states also follow origin-based tax regulations, where the sales taxes are levied as per the regulations of the operating location of the LLC selling goods or services. 

State-Specific Sales Tax Considerations

Generally, the state-specific sales tax requirements are determined by a legal test that revolves around the concept of “Sales tax nexus”. The term “nexus” denotes the extent of business connection an LLC has with the state in which it is operating.

If the connection is strong enough, the LLC owners have to collect the sales taxes from their customers and remit them to the state and local government.

The extent of this business connection is determined by various things, such as a physical store/shop in a particular location, employing people in a particular location, shipping goods and number of customers, etc. 

For example, an online business becomes eligible to collect sales taxes in a particular state if it is shipping goods in that state. 

Home-rule states, ie., Alabama, Arizona, Alaska, Colorado, and Louisiana allow individual cities to define their own tax bases and administer their own sales taxes.

In such states, the LLC owners need to complete additional documentation and registration formalities for filing sales taxes. 

Hence, we recommend consulting with a professional tax consultant or checking individually with your local or state tax authorities for accurate filing and avoiding penalties later.

Procedure for Collecting, Reporting, and Paying Sales Taxes

Start by understanding your sales tax obligations and where they lie in terms of local and state governments. Then you have to complete sales tax registration, calculate your sales tax obligations, and start collecting it from your customers. Filing and remitting sales tax is the last step and an ongoing process. 

Sales tax is a type of indirect tax and is often called pass-through tax as the employers have to collect and remit this tax themselves. 

As every state has its own tax regulations and filing requirements for sales tax, the filing frequency also varies across all the states. The filing frequency can also change depending on the annual revenue and other factors. 

As an LLC owner you have to file sales tax returns every year (or as per the filing frequency set by the state government) even if you are not collecting any state tax from your customers.

When you keep on filing the Zero returns for sales tax, your state or local government might issue you a notice to stop filing for sale tax returns. Until then, you must file the returns timely.

The deductions and exemptions vary across different states and often include selling of tax-exempt products, resale exemptions, selling to exempt organizations, and sales for which taxes were collected by marketplace facilitators.

Managing and Filing Taxes for Your LLC: IRS Resources

The IRS offers highly detailed tax publications explaining each and every form as well as due taxes for LLCs. You can find them online along with the recent updates and announcements related to all the forms, filing procedures, collection methods, etc.

However, reading and compiling all this information can become cumbersome if you are running a business, especially if you are not familiar with the technical jargon and documentation formalities. 

Hence, recommend getting in touch with professional tax advisors and consultants to maximize your deductions and ensure accurate tax filing every time. 

How Can Professional Tax Advisors and Accountants Help?

LLC taxes and filing can be complex, especially when it comes to state or local tax regulations that vary from one place to another, such as self-employment and pass-through taxation. Calculating and maximizing deductions become even more difficult in cases where the tax obligations themselves are confusing. 

This is where tax advisors and professional accountants can be of extreme help. They can not only help you plan and manage your taxes but they can also help you maximize your tax deductions.

They have years of experience and financial expertise that makes it easier for you to focus on the business aspects of your LLC.

However, finding a reliable tax consultant in your jurisdiction can also become a tedious task. This is where doola steps in!

Get Started With doola: Put Your LLC Tax Filing on Autopilot

doola is a single-stop solution for all your tax filing and management needs irrespective of the type of your business structure, be it LLC, corporation, or nonprofit.

What makes doola unique is the fact that it becomes your perfect go-to partner for all business formalities and technicalities, right from the conception of a business idea in your mind. 

We help businesses choose the right business structure, decide the right location for starting the company, file taxes, manage documentation, and much more. We also offer a highly comprehensive total compliance package for tax consultation and ongoing regulatory compliance.

With its highly tailored offerings for LLCs, doola surpasses the service portfolio of a standalone tax expert and helps you unlock seamless tax management. 

For more information on doola’s different offerings, or to get started with doola, please get in touch with our experts over a free consultation call today!