An LLC files taxes based on its structure. Single member LLCs default as sole proprietors, while multiple member LLCs default as partnerships. LLCs taxed as corporations file returns regardless of income: C-corps use Form 1120 and S-corps use Form 1120S. Shareholders of S and C corporations report income on personal returns, which helps to avoid double taxation of earnings. However, inactive LLCs may still need to file returns based on their tax status, as some states often require filing.
Losses and Deductions
LLCs with losses can write off investments on Form 8949, deduct expenses, or carry losses forward. Operating losses can help to lower or eliminate tax burden. Most LLC structures allow owners to claim losses personally, except for C corporations that cannot pass losses to owners’ tax returns.
Benefits and Risks of Filing
Filing taxes for no income LLCs has several benefits: it establishes a history of deductions, helps maintain compliance if claiming tax-exempt status, and keeps the LLC in good standing with the state. Failure to file, however, risks penalties, back taxes, or suspension of the business. Additionally, it’s noteworthy that some states, like California, charge fees to LLCs regardless of income.