Filing LLC taxes doesn't have to be difficult! In this guide, we'll explain LLC tax filing definitions, how to file LLC taxes, review LLC tax deductions to keep in mind, and answer FAQ on LLC tax filings. Here is an overview of what you need to know to file taxes online, including LLC tax filing options.
Definitions and Types of LLC Tax Filings
With any LLC, there will be a default tax filing designation. However, there are other LLC tax filing options. For single-member LLCs, the default is to disregard the LLC entity. For multi-member LLCs, the default is to be treated as a partnership. If you wish to change that designation to be taxed as a corporation, you will need to file an IRS Form 8832.
Single Member LLC Tax Filing
For individual business owners filing LLC taxes, the IRS generally disregards the LLC and only taxes the single member on the company's profits. When you prepare your personal income tax return, you will need to fill out a Schedule C attachment (also known as a “Form 1040, Profits and Losses”) in addition to the 1040 form. The Schedule C will report the income and deductions of your business activities. If there is a profit, the profit is reported with your income on your 1040 form.
Partnership Tax Filing for LLCs
For LLCs functioning as a partnership, a Form 1065 must be filled out for the members of the partnership, which they will then use for their tax returns. The return is for informational purposes only—the LLC does not directly pay taxes on profits. Rather, each member reports income, deductions, and credits on their tax return for a partnership tax filing.
An LLC also gives each member a Schedule K-1, showing the owner's share of the income, deductions, and credits of the business. This profit shown on the Schedule K-1 is reported on the member's tax return, along with any other income.
Corporate Tax Filing
If you fill out a Form 8832 (also known as an "Entity Class Election") and elect to file corporate tax, your business will be taxed as a separate entity from you and your partners. As a result, the business would be responsible for reporting all income and deductions on Form 1120 each year. This is one of the lesser-used LLC tax filing options.
Many times, electing to file corporate tax causes the business to be taxed twice. The corporate profits are taxed, and then the dividends that are distributed to owners are taxed on the owners' tax returns a second time. However, there are times when filing a corporation tax is advantageous, as the corporate tax rate is less than the personal tax rate. In addition, this election allows the company to retain earnings in the company's ownership, rather than distributing all profit to partners.
State and Local Taxes
You may be wondering if you also need to file state taxes for your LLC as well. While the federal government does not tax LLCs directly, some states and locales do levy taxes on an LLC. Many times these taxes are in the form of annual state fees, rather than a percentage of profits. You will want to be aware of all state and local LLC taxes and fees in order to keep your business in good standing.
LLC Tax Filing Deductions
Among other LLC tax advantages, there are a number of deductions that can help you lower the overall taxable income for your business. All deductions must be legitimate business expenses incurred in the normal operation of your business. LLC tax advantages include:
On your LLC tax return, the IRS allows an LLC tax deduction of up to $100,000 in equipment purchases as long as the equipment is being used in the United States. In addition, LLCs can deduct an expense for equipment depreciation.
Generally, contributions a member makes to an employee retirement plan―such as a 401(k) or 403(b)―may be tax deductible depending on the type of plan. When completing your LLC taxes, check with the IRS for an up-to-date list of retirement plans that qualify for a deduction.
In addition to the LLC tax benefits above, money spent on member or employee travel for business purposes can be deducted on a member's taxes. For example, this includes money the company spends on airline fare, cab fares, and hotels.
When it comes to tax filing, expenses like hosting onsite events, training programs, and employee seminars are tax deductible for LLCs. Generally, money spent on employee wellness, such as health, career, or mental health counseling is also deductible. Expenses incurred while educating members or employees about the business, including books, CD, coursework, and continuing education hours, are also allowed as write-offs for tax purposes. You should consult your tax advisor to determine the deductibility of the cost for your LLC.
Dues and Subscriptions
LLCs may deduct money spent on subscriptions to magazines, newspapers, and trade publications related to the business, adding to the list of LLC tax advantages. In addition, dues to trade-related organizations are also a valid tax write-off.
Permits and Licenses
Any licenses or permits required to operate the business are valid LLC tax deductions, including occupational licenses, business licenses, and sale permits.
Can I choose to be taxed one way, and my partners another?
No, the tax classification choice is for the LLC as a whole. All partners are bound by it.
Does an LLC file a tax return?
An LLC has to fill out a Form 1065, but it is an informational form only. An LLC does not pay taxes individually. Instead, the members file their own taxes reporting their share of the LLC profits.
Does the LLC need to file any federal tax forms, even though it is not taxed?
An LLC needs to file an informational form called a 1065, which informs the IRS as to what income should be expected on each member's tax return. Although the LLC itself isn't taxed, it is required to file a form 1065.
What is the LLC tax filing deadline?
Your LLC tax filing deadline depends on what tax classification you choose. For a single-owner LLC, treated as a sole proprietor, the due date is the same as individual taxes: April 15th. A multi-member LLC being taxed as a partnership must file Form 1065 by March 31st, while partners are due to file taxes by April 15th. An LLC that chooses to be taxed as a corporation needs to choose a date that serves as the end of the fiscal year. The taxes are then due on the 15th day of the third month after the end of the fiscal year. So a corporation with a fiscal year ending December 31st would have taxes due March 15th.
My taxes aren't ready. Can I file a tax extension with the IRS?
You can, using a federal Form 7004. This gives you five extra months to finish your partnership's taxes. You would also need to file for a personal tax return extension. The one thing that's important with an LLC extension is that all partners need to take the extension. You can't have one partner file while another partner extends. All partners should coordinate their tax filings. For a single-member LLC, a Form 7004 is not needed. A personal tax return extension is sufficient.
I want to file LLC taxes online. Is that possible?
Yes, it is possible to file LLC taxes online. The IRS supports complimentary online forms you can complete digitally, rather than hand-writing the regular forms, or you can use their tax professional locator to find an e-file provider near you. Both options are available on the IRS Filing Options site.
I need more specific details on how the IRS handles LLC tax filings. Where can I find that information?
The IRS has a very helpful and detailed booklet on how to file LLC taxes, available on the IRS site. In addition, your tax accountant can help you understand the specifics of your situation.
Does our LLC have to divide our profits based on percentage of investment?
No. However, you must follow the IRS's special allocation rules, and your allocation strategy needs to be detailed in your LLC's operating agreement.
Can incorporate.com file my taxes for me?
Unfortunately we cannot. For more information on how to file an LLC tax return, please consult a tax accountant for any specific tax advice or for help with a question that arises during the filing of LLC taxes.