Federal Tax Considerations for Single-Member LLCs
Typically, single-member LLCs do not need to file tax returns. The IRS treats one-member LLCs as sole proprietorships. The LLC’s profits and losses are reported on the owner’s personal tax return.
Tax Elections for LLCs
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. To do so, the LLC must file paperwork with the IRS.
Consequences of Failing to File Taxes
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, though you do lose the chance of getting that refund. You have a limited period to claim that refund as well.
Additional Filings and IRS Requirements
Partnerships and LLCs taxed as partnerships must file Form 1065 to report income and losses. Single-member LLCs report income on their owner’s Schedule C tax form.
To protect assets, some LLCs file separate tax returns to qualify for small business loans or state financial aid. LLC corporations must file taxes yearly even without income. Understanding an LLC’s tax status and filing requirements is important.
One thing to note is that payroll taxes aren’t paid when you file the tax forms. Deposits can be made on the Electronic Federal Tax Payment System (EFTPS).
Thus, an LLC with no business activity that is taxed as a partnership is not required to file a partnership tax return unless there are expenses or credits that the LLC wants to claim.
You must file Form 8832 (Entity Classification Election) to inform the IRS of your chosen tax category. Obtain an Employer Identification Number (EIN) for tax purposes.
If an LLC would like to be taxed as a C-Corporation, it must file Form 8832.
You will also need to distribute Schedule K-1 to all LLC members and owners if you elect to be treated as an S corporation.