What Is the Federal Income Tax Rate for LLC?

Overview of LLC Taxation

• The tax rate is the amount of taxes that an LLC (limited liability company) must pay on its income.
• As taxes for an LLC are passed through to its members, the federal income tax rate effectively becomes the functional tax rate for LLC owners.

LLC Tax Rates

• Effective tax rates for LLC owner income, at the federal level, range from 14% to 39%.

Tax Treatment and Structure

• The IRS disregards the LLC entity as being separate and distinct from the owner.
• LLCs do not pay income tax, but the owners of the LLC are taxed for their share of the income earned by the LLC.
• Default status: If you own an LLC by yourself, you are taxed by default as a sole proprietorship. If you own an LLC with other individuals, you are taxed by default as a partnership. Either way, LLC’s are considered a pass-through entity by default.

Tax Election Options

• Any LLC can choose to be treated like a corporation for tax purposes by filing IRS Form 8832, Entity Classification Election, and checking the corporate tax treatment box on the form.

Self-Employment Taxes

• The self-employment tax rate is applied to the net earnings of your business.
• For most people, the self-employment tax will be their largest business expense.
• Fortunately, self-employment taxes are deductible on your personal income tax return.

LLC Tax Advantages

• One of the biggest tax advantages of a limited liability company is the ability to avoid double taxation.
• LLC owners do not have to pay corporate federal income taxes.

Filing LLC Taxes

• In this LLC Taxes article, we break down how an LLC is taxed, guide you through the potential deductions you’ll be able to make, and explain how to ensure efficient and timely tax filing.

How LLCs are Taxed

• Depending on the choices made by the owners, or members, the LLC is permitted by the IRS to be taxed as either a sole proprietorship, a corporation, or a partnership.

Tax Responsibility

• It is the members of the LLC who are responsible for paying income tax on any income earned from the LLC in addition to their self-employment taxes.
• If, after deducting business expenses, the LLC generates a profit for the year, the owner will owe taxes to the IRS in accordance with their personal income tax rate.