Whether you’re legally required to file business taxes with no income depends on how your LLC is taxed. LLCs have the unique ability to be taxed in many ways, and each taxation status has a set of rules for business tax filings. Don’t forget about state tax filings. Businesses are registered at the state level, so you might be required to file a state return while being exempt from federal filing.
The LLC tax election is an important feature of pass-through taxation for LLCs. It has been specifically designed to provide great relief to small business owners who are operating their businesses by reducing their income tax liability. If you fail to file this election, your LLC will be taxed like a regular corporation, not a pass-through taxation entity.
No matter your LLC tax classification, operating at a loss or with no income doesn’t preclude you from filing your tax return. It’s important — and the law — to file taxes for an LLC with expenses and no income.
Filing for Different LLC Classifications
LLCs treated as sole proprietorships are responsible for filing their taxes using either a 1040 Schedule C or a 1040 Schedule C-EZ Form. This form is to be included with the individual’s personal income tax return and will report any profits or losses from the LLC.
LLCs treated as partnerships file taxes using Form 1065, U.S. Return of Partnership Income, which reports the LLC’s income, deductions, gains, and losses to both partners and the IRS.
Thus, if an LLC has elected to be treated as a corporation for tax purposes, it must file a federal income tax return even if the LLC did not engage in any business during the year.
Even if your LLC had no activity throughout the year, including no expenses or income, you are still required to file a tax return. Ensure to complete the necessary forms and indicate that there was no financial activity during the tax year.
Consequences and Benefits of Filing
Filing taxes for your LLC, regardless of income, helps maintain the company’s good standing with the IRS. It shows that you are fulfilling your obligations as a separate legal entity, which may be beneficial in case of future audits or legal procedures.
What happens if my LLC does not make money?
An LLC files taxes based on its structure. Models that pass through their income and deductions include single member LLCs (default as sole proprietors) and multiple member LLCs (default as partnerships).
LLCs with losses can write off investments, deduct expenses, or carry losses forward. Operating losses help lower or eliminate tax burden. Most LLC structures let owners claim losses personally.
Whether mandated or not, filing taxes for no income LLCs has benefits. It establishes deduction history, maintains compliance if claiming tax exempt status, and keeps LLC in good standing with the state. Not filing risks penalties, back taxes, or suspension. States like California charge fees regardless of income; California charges $800 to LLCs operating or organized there.
Scenarios with Expenses and No Income
Can I have an LLC with expenses but no income?
LLCs filing as corporations must submit returns regardless of income level, while non-corporate filings may depend on state requirements. Having an LLC with no income but expenses is common and normal for many businesses, especially during their early stages of operation. As long as members understand their legal and financial responsibilities and obligations there is no issue with having expenses but no income as an LLC.