An LLC files taxes based on its structure. Single-member LLCs default as sole proprietors, passing income and expenses directly to owners. Multiple-member LLCs default as partnerships, passing income and deductions to partners and the IRS via Form 1065 annually. LLCs taxed as corporations file returns regardless of income. C-corps use Form 1120, and S-corps use Form 1120S. Both entity types pass income to shareholders.
Reporting Income and Deductions
Shareholders of S and C corporations then report income on their personal tax returns. This avoids double taxation of earnings. However, LLCs not filing as corporations may not need to file tax returns if they have no income, but states often require filing anyway, and inactive LLCs may still need to file tax returns based on their tax status.
Handling Losses
LLCs with losses can write off investments, deduct expenses, or carry losses forward. Truly worthless investments qualify for write-offs on Form 8949. Operating losses can help lower or even eliminate the tax burden. Most LLC structures allow owners to claim losses personally. However, C corporations cannot pass losses to the owners’ tax returns.
The Benefits of Filing
Whether mandated or not, filing taxes for LLCs with no income has benefits. It helps establish a deduction history, maintains compliance if claiming tax-exempt status, and keeps the LLC in good standing with the state. Not filing risks penalties, incurring back taxes, or suspension of the business. Some states, like California, charge fees regardless of income; for example, California charges $800 to LLCs operating or organized there.