Tax Classification and Filing
By default, an Illinois LLC is taxed by the Internal Revenue Service (IRS) based on the number of Members the LLC has. An LLC with 1 owner (Single-Member LLC) is taxed like a Sole Proprietorship. An LLC with 2 or more owners (Multi-Member LLC) is taxed like a Partnership.
Alternatively, you have the option of requesting an “elective status” for your LLC. This is done by filing an extra form with the IRS. In order for your LLC to be taxed as an S-corp, you’ll file Form 2553 with the IRS. To elect S-corp taxation, your LLC will need to meet certain IRS requirements. S-corp tax filings are a bit more complicated than regular LLC filings, but in some cases the tax savings may be worth the extra work.
Illinois LLCs have the option of electing to be taxed as S-corps. Like regular LLCs, S-corps are taxed as pass-through entities. Whereas the profits from an LLC are distributed in a lump sum, S-corps can distribute profits as dividends and as a reasonable salary. While the salary payments will need to pay the self-employment taxes (15.3%), the dividends can remain untouched.
State Tax Compliance
LLCs that elect to be taxed as corporations at the federal level will be taxed as corporations at the state level in Illinois. The LLC will file Form IL-1120, Corporation Income and Replacement Tax Return with the IDOR. The income tax rate for Illinois, as of 2023, is 7% of net income.
Illinois imposes a 1.5% personal property replacement tax on LLC net income, payable to the Department of Revenue. Use Form IL-1065. If your business elects to be taxed as a corporation, you might need to pay additional taxes that apply to corporations.
Tax Payments and Requirements
Knowing the different income taxes, payroll taxes, sales taxes, and other taxes that Illinois LLCs pay is essential to prevent noncompliance with the law. Our guide covers the basics you should know about Illinois LLC filing requirements.
Staying current on finances and taxes is essential to prevent noncompliance. LLC profits aren’t taxed like C Corporations. Owners pay self-employment tax on profits. Owners pay state income tax on profits after deductions. Owners pay federal income tax on profits after deductions. Some LLCs pay sales tax. Employers pay payroll tax on employee salaries. Employees pay taxes on earnings.