Filing LLC Taxes

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Filing LLC taxes doesn't have to be difficult! Here is an overview of what you need to know to file taxes online, including LLC tax filing options.

Choose Your Tax Designation

With any LLC, there will be a default filing designation. However, there are other LLC tax filing options. For single-member LLC's, the default is to disregard the LLC entity. For multi-member LLC's, 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 Tax Filing

For individual business owners filing LLC taxes, the IRS generally disregards the LLC and only taxes the member on the profits from the company. When you prepare your personal income tax return, you will need to fill out a Schedule C attachment 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

An LLC functioning as a partnership is responsible for filling out a Form 1065 for the members of the partnership to use with their tax returns. The return is for informational purposes only – the LLC does not directly pay taxes on profits. Each member, instead, reports income, deductions, and credits on their tax return.

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 and elect to be taxed as a corporation, 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, corporate tax election 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 again. However, there are times when a corporate filing 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

While the federal government does not tax LLC's directly, some states and locales do levy taxes on an LLC company. Many times these taxes are in the form of annual state fees, rather than a percentage of profits. You will want to make sure you are aware of all state and local taxes and fees in order to keep your LLC in good standing.

Among other LLC tax benefits, 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.

Equipment

On your LLC tax return, the IRS allows an LLC to deduct up to $100,000 in equipment purchases as long as the equipment is being used in the United States. In addition, LLC's can deduct an expense for equipment depreciation.

Retirement Plans

Generally, contributions a member makes to an employee retirement plan such as a 401(k) or a 403(b) may be deductible depending on the type of plan. When completing your LLC taxes, check with the IRS for an up-to-date list of allowable retirement plans that qualify for a deduction.

Travel Expenses

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, hotels.

Business Expenses

When it comes to LLC tax filing, funds your business spend on hosting onsite events as well as money spent on training programs and employee seminars are tax deductible. 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.

Dues and Subscriptions

You are allowed to deduct money spent on subscriptions to magazines, newspapers, and trade publications related to the business, adding to the list off 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 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 with the IRS, which is then used to help the IRS know what income to expect 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 April 15, the same as individual taxes. A multi-member LLC being taxed as a partnership has to file the Form 1065 by March 31, and 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 Dec 31 would have taxes due March 15.

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 free fillable forms that you can use online instead of hand-writing the regular forms, or you can use their tax professional locator to find an e-file provider that is 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. The booklet is 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, you do not. You do have to follow IRS special allocation rules, and your allocation strategy does need to be detailed in your LLC's operating agreement.

Can The Company Corporation 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.

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