North Carolina LLC Taxation Overview
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North Carolina LLCs don’t pay federal income tax. Instead, LLC members pay income tax after receiving LLC profits. LLC members pay 15.3% federal self-employment tax.
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By default, North Carolina LLCs are taxed as pass-through entities. North Carolina has one of the lowest corporate income tax rates. Revenue is passed to members, who report it as income on personal taxes. Members pay 15.3% federal self-employment tax. North Carolina has the lowest corporate net income tax (2.5%) and state-wide sales tax rate of 4.75%.
LLC Establishment and Maintenance
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Steps to start an LLC: Choose a name. Get it approved. File formation documents. Appoint a registered agent. Make an operating agreement. Get licenses. Open a business bank account.
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All North Carolina LLCs pay $200 per year for the Annual Report to the Secretary of State. These are the only annual fees.
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When starting an LLC, account for filing the Articles of Organization. While formation fees vary, this mandatory expense must be considered upfront.
Tax Filing and Compliance
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Multi-Member LLCs file federal taxes on personal returns as a partnership. However, LLCs have the option to file for corporation status with the IRS using Form 8832.
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Consult a tax advisor before deciding how to file taxes for your LLC. Pay federal obligations as a sole proprietor, partnership, or S-corp.
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An LLC designated as a partnership files a federal Form 1065 partnership income tax return. LLCs must file an annual report to update company address and agent info. Willful failure to file a tax return is a misdemeanor.
Sole-Owner LLC Taxation
- The IRS treats one-member LLCs as sole proprietorships for tax purposes. The LLC itself does not pay taxes and does not have to file a return with the IRS.
Benefits of LLC in North Carolina
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North Carolina LLCs offer liability protection and flexible taxation. Owners pay income tax on profits and 15.3% self-employment tax. LLCs can change status and pay 21% corporate tax.
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Most LLCs in North Carolina choose pass-through structure. Each owner reports their share of income and expenses like a sole proprietorship.