Tax Classification
An LLC with 1 owner is taxed like a Sole Proprietorship. An LLC with 2 or more owners is taxed like a Partnership. Alternatively, you can request “elective status” for your LLC by filing an extra form with the IRS. To be taxed as an S-corp, file Form 2553. Your LLC will need to meet certain IRS requirements.
Pass-through Taxation and Additional Taxes
LLCs benefit from pass-through taxation. The business’s profits pass through to members’ tax returns, while the LLC itself doesn’t pay federal or state taxes. Instead, LLC owners must pay taxes on their share of income. Illinois imposes a 1.5% personal property replacement tax on LLC net income, payable to the Department of Revenue. Use Form IL-1065. Some LLCs choose corporate taxation. Then the LLC files IL-1120, Corporation Income and Replacement Tax Return. The 2023 income tax rate in Illinois is 7% of net income.
Compliance with Tax Payments
Staying current on finances and taxes is essential to prevent noncompliance. Owners pay self-employment tax on profits, state income tax on profits after deductions, and federal income tax on profits after deductions. Some LLCs pay sales tax. Employers pay payroll tax on employee salaries. Employees pay taxes on earnings.