Understanding LLC Tax Filings
Knowing how to file business taxes for an LLC is an important step in keeping your finances on track. If you’re starting out, you’ll probably prefer to file as a sole proprietorship or partnership. But as your business grows, you should consult a tax adviser or accountant to see if your LLC might benefit from taxation as a corporation.
Single-member LLC taxes work like those of a sole proprietorship. LLCs report their business income and expenses on Schedule C of the member’s personal income tax return. The member then lists the net profit or loss on Form 1040.
Tax Options and Requirements
LLCs have the option to file taxes in a variety of ways, and each taxation status has its own set of filing requirements. State tax filings must not be neglected. You may be obliged to file a state return even if you are exempt from filing federally.
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In this guide, we will take you step-by-step through the filing process of disregarded entities (Single-Member LLCs) and partnerships (Multi-Member LLCs).
Single-member LLCs are treated like sole proprietorships for taxes, unless they elect to be a corporation. Multi-member LLCs can elect S and C corps taxation, but the default treatment is similar to a general partnership.
Even if you’re filing taxes for your LLC as a partnership, you still must pay estimated quarterly taxes if you expect to owe $1,000 or more in taxes for the year. Use IRS Form 1040-ES to estimate your tax liability.
Common Questions About LLC Taxes
Do I file LLC and personal taxes together?
The default tax situation for an LLC is that it doesn’t pay federal income taxes directly. Instead, its profits go straight to the owners, who then report this money and pay personal income and self-employment tax on their earnings. This process is known as “pass-through taxation.”
Single-member LLC owners can simultaneously report their business profits and deductible expenses on their personal tax returns.
Multi-member LLCs report their total business income but not for tax-paying purpose, while each member reports and pays taxes on their individual share of the business profits.
It is only LLCs who elect the C-corp tax designation that are not regarded as pass-through entities; owners are therefore required to file their LLC taxes separately from their personal tax returns.
To report and pay federal income tax on your SMLLC’s business, you will need to attach Schedule C, Profit or Loss From Business, to the personal federal tax return you file with the IRS. Schedule C contains information about your SMLLC’s annual income, expenses, and overall profit or loss.
What happens if an LLC does not file taxes?
As the sole owner of your LLC, you must report all profits (or losses) of the LLC on Schedule C and submit it with your 1040 tax return.
If you fail to file your taxes on time, you’ll likely encounter what’s called a Failure to File Penalty. The penalty for failing to file represents 5% of your unpaid tax liability for each month your return is late, up to 25% of your total unpaid taxes. If you’re due a refund, there’s no penalty for failure to file. However, you have a limited period to claim that refund as well.
LLCs can choose corporate tax status by making a tax election. This allows the LLC to file taxes as a C-corporation or S-corporation rather than a pass-through entity. The LLC will continue operating legally as an LLC even if it chooses corporate tax status for tax purposes.
In general, if your income is below a certain level, you may not need to file a personal tax return. However, use IRS tools to determine if you should file a return.