LLC Tax Filing and Inactivity
Even if an inactive LLC has no income or expenses for a year, it may still have to file a federal income tax return. LLC tax filing requirements depend on how the LLC is taxed. An LLC may not be considered an entity for tax purposes, or it may be taxed as a partnership or a corporation.
Dissolution of an Inactive LLC
Inactive dissolution refers to dissolving a business that is inactive. When a business dissolves, it no longer has to file income tax returns or annual reports, so those aspects are the main benefits of electing to dissolve, rather than simply becoming inactive.
Risks and Responsibilities
Owners may become personally liable for any outstanding tax liability as a result. In most states, a corporation continues to incur penalties if it has not been dissolved. A pass-through entity (also known as flow-through entity) is a business structure in which business income is treated as personal income of the owners.
Information and Guidelines
- Ongoing Costs: Dissolving or terminating the LLC is another option if you have no plans to reactivate it in the future. While this route may provide more finality, it’s essential to consult with a legal or tax professional to determine which option is best for your specific circumstances, as both inactivity and dissolution have their implications.