Learn all about your federal income tax obligations as an LLC business.
According to the IRS, there are over 25.5 million sole proprietorships in the U.S., making it the most popular form of business ownership. And there’s a reason for this: A sole proprietorship requires no startup paperwork and is a simple way to run a small business. That’s why when most business owners start out, they begin as a sole proprietorship.
Eventually, many sole proprietors switch to a limited liability company (LLC) formation for liability protection. With an LLC you have limited personal liability, which helps some small business owners sleep more soundly at night.
But moving to an LLC changes more than liability—how you pay income taxes many also change. In this article, we’ll cover the different requirements for filing your taxes as an LLC.
Default Tax Status
Want to pay income taxes for your LLC? The IRS will throw you a bit of a curveball. They don’t actually recognize LLCs as an entity. You create and register an LLC in a state, but as far as the IRS is concerned, there’s no income tax form for an LLC.
Unfortunately, that doesn’t mean you get to skip paying taxes all together. The IRS will assign a default tax status based on whether the LLC is run by just one person or multiple people. A business owner can choose how to have their LLC taxed. It can either be taxed as a sole proprietorship (one owner), partnership (two or more owners), or corporation (any number of owners).
If you don’t make a choice, by default your LLC will be taxed as a sole proprietorship or partnership. But not to worry, the below section covers the income tax requirements for all three types.
How to File As a Single-Member LLC
If you are the one and only member of your LLC, the IRS will treat your tax status as a disregarded entity (unless you elect otherwise). So your tax status will look very similar to a sole proprietorship (i.e., the business isn’t separate from the owner for tax purposes). Any profits or losses pass through to you as the owner.
To submit taxes as a single-member LLC you’ll file Schedule C with your personal income tax return. On Schedule C you’ll report the income and expenses from your business. That amount will then be included as income or loss on your personal tax return Form 1040.
There is an exception here: If your LLC owns rental properties, the information would be included on Schedule E, rather than Schedule C.
These tax returns are due by April 15, along with your personal tax return.
How to File As a Multi-Member LLC
If more than one person owns the LLC, the default tax status is to be treated as a partnership. Filing gets a little more complicated with a multi-member LLC versus when there’s only one LLC member. The LLC will need to fill out a partnership information return, Form 1065. It will also need to submit form K-1 for each member of the LLC, which includes each partner’s share of income, deductions, and credits.
On your Form 1040, you’ll include the information from your K-1 on Schedule E, supplemental income.
Form 1065 and Schedule K-1 are due by March 15. Reporting that information on your Form 1040 and Schedule E are due by April 15.
How to File As a Corporation
As an LLC you do have flexibility with your tax status. You can stick with the default options listed above, or you can elect to file as a C corporation or an S corporation. This election doesn’t change your business structure—it will still operate as an LLC. It just changes how the IRS expects you to file and pay your taxes.
How to File As a C Corporation
If you want the IRS to tax your LLC as a C corporation, you’ll need to complete and submit Form 8832 to make this election with the IRS. You’ll then file Form 1120 annually for your business tax return.
How to File As an S Corporation
Opting for an S corporation status? You’ll need to complete and submit Form 2553 with the IRS. You’ll then complete form 1120 S annually for your S corporation tax return. But an S corporation is a pass-through entity, meaning it doesn’t actually pay taxes itself. Any income and expenses actually flow through to your personal tax return. So that means there are more forms to fill out. Each LLC owner will receive Schedule K-1 and will report that information on Schedule E of Form 1040.
Estimated Quarterly Tax Payments
The U.S. operates as a pay as you go tax system, meaning that you have to make income tax payments throughout the year. If you complete your LLC taxes using the default tax status (default single-member or multi-member LLC) you will need to make estimated income tax payments. These tax payments are due four different times a year: April, June, September, and January.
You can make estimated tax payments using Form 1040-ES. Don’t forget to keep track of your payments made as you’ll need to report them on your tax return.
Whether you have one member in your LLC or multiple, when you earn income from business activities, the IRS requires you to pay self-employment tax on your earnings. This is a total tax of 15.3%, which covers Medicare and Social Security taxes. You’ll use Schedule SE to calculate how much self-employment tax you owe.
If you elect to be treated as an S corporation or a C corporation, you won’t need to pay self-employment taxes. The corporations will pay payroll taxes instead, and those taxes will be taken out of each employee’s paycheck.
This article only covers federal income tax for your LLC. You’ll also need to file taxes with your state. Check your state requirements for due dates, forms required, and any fees. In some states, you may even need to pay annual filing fees and you don’t want to miss those.
For example, it’s expensive to form an LLC in California. The state charges an annual filing fee of $800. And if your business earns more than $250,000, you’ll have to pay the state of California additional tax.
Tax Return Due Dates
There are many different ways that LLC taxes are paid. And because of this (and all of the different forms), there are a number of different due dates. Here’s a breakdown:
- Single-member LLC: Your Schedule C and Schedule SE are due April 15
- Multi-member LLC: Form 1065 and Schedule K-1 are due March 15. Schedule E and Schedule SE are due April 15
- S corporation: The 1120 S and K-1 are due March 15*
- C corporation: The 1120 is due April 15*
*Those due dates are based on the business using a calendar year (when the business year ends on December 31).
If you can’t get your taxes done by those due dates, you can file an extension. Knowingly ignoring a deadline will only lead to failure to file penalties. Note that this gives you an extension to file your taxes, but you’ll still need to pay your taxes by the original due date.
Can an LLC Get a Tax Refund?
Once you’ve filed correctly, you may wonder if the IRS will send your LLC a check for any over-payment. Aside from the C corporation, all other tax statuses are pass-through entities, meaning the individual pays taxes and receives taxes. Only C corporations can get a refund. For any other LLC filing types, the business owner will receive the refund.
So yes, you will get your excess tax payments back, but it will be you receiving the money personally, rather than your LLC getting a refund check.
Can I File My LLC Taxes Separately?
Since an LLC is a business, can you file taxes separately from your personal tax return? The answer is yes and no. It really depends on your LLC tax structure. If you’re a single-member LLC, a partnership, or an S corporation, these are all pass-through entities. That means any profits and losses flow through to your tax return.
But if you’re being taxed as a partnership or an S corporation, you need to send in separate returns as well as include the income and losses of the LLC on your 1040 individual tax return.
If you elect to be taxed as a C corporation, you will complete your tax return separately—income and losses from the business don’t flow through to your individual income tax return.
Get Your LLC Ready for Tax Time
It never hurts to revisit tax requirements, especially when filing as an LLC for the first time. By understanding the obligations for your specific tax structure and knowing the deadlines, you can file your taxes with confidence.
This post was updated in December, 2020.
about the author
Erica Gellerman is a CPA, MBA, content marketing writer, and founder of The Worth Project. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, and more. She currently lives in Hawaii.