How Do I File My LLC Taxes? – Don’t Make This Mistake + FAQs

Nearly 40% of small business owners say taxes are the worst part of owning a business.

If filing taxes for your LLC feels overwhelming 🤔, you’re not alone. Limited Liability Companies (LLCs) are one of the most popular business structures (about 35% of U.S. small businesses are LLCs), yet many owners worry about getting their taxes right.

How to File LLC Taxes (Step-by-Step Overview)

Filing LLC taxes involves determining how your LLC is classified for tax purposes and then filing the correct forms with the IRS (and your state). Here’s a quick step-by-step overview:

1. Determine your LLC’s tax classification: By default, the IRS ignores the LLC itself for federal tax. A single-member LLC is a “disregarded entity,” taxed as a sole proprietorship on the owner’s return, and a multi-member LLC is taxed as a partnership. (You also have the option to elect S corporation or C corporation taxation – more on that below.)
2. Gather records of your income and expenses: As with any business, ensure your bookkeeping is up to date. You’ll need your LLC’s financial records (revenues, expenses, deductions) for the tax year to accurately report profit or loss.
3. Complete the appropriate federal tax forms: This depends on your classification:
   
   • Single-member LLC: No separate business return is required. Report business income and expenses on Schedule C attached to your personal Form 1040 (or Schedule E/F for rental or farm income, if applicable).
   • Multi-member LLC: File Form 1065 (U.S. Return of Partnership Income) for the LLC by March 15. Give each member a Schedule K-1 showing their share of profits.
   • S Corporation Election: File Form 1120S (S-Corp tax return) by March 15 and issue each owner a K-1. (You must have filed Form 2553 to elect S-corp status.)
   • C Corporation Election: File Form 1120 (Corporate tax return) by April 15 if you elected to have your LLC taxed as a C-corp (via Form 8832).
4. Report LLC income on the owners’ personal returns: In all cases except a C-corp election, the LLC’s profits “pass through” to the owners. That means after the LLC files any required business return, each owner reports their share of the profit on their personal Form 1040. For single-member LLCs it’s already on Schedule C of your 1040; for partnerships and S-corps, you’ll enter the K-1 amounts on your 1040 (usually on Schedule E for supplemental income). The owners then pay income tax on that profit at their individual tax rates.
5. Pay self-employment taxes if applicable: LLC owners are considered self-employed (for sole proprietorships and partnerships), so Social Security and Medicare taxes apply to the business profit. This self-employment tax is 15.3% (covering both the employer and employee portions) on earnings up to the Social Security wage base (and 2.9% Medicare on anything above). You’ll calculate it on Schedule SE and include it with your Form 1040. For example, if your single-member LLC earned $50,000 in profit, roughly $7,650 of SE tax would be due (in addition to income tax). You can deduct half of your SE tax ($3,825 in this example) as an adjustment on your 1040. If eligible, you can also take the 20% QBI deduction (which could deduct around $16,000 from taxable income, saving further on your income taxes).
6. File state tax forms and pay state taxes/fees: After handling federal taxes, make sure to address state obligations. Most states require you to report your LLC income on a state return (often on your personal state income tax form, since LLCs are pass-through entities). Some states also require separate LLC filings or franchise taxes – for example, California charges an $800 annual LLC tax regardless of profit. We’ll cover state taxes in detail later, but be aware of your state’s rules by checking with your state’s Department of Revenue or taxation agency.
7. Submit on time and pay any taxes due: Finally, send in your returns by the deadlines (generally March 15 for partnership or S-corp returns, and April 15 for individual returns and C-corps). If your LLC’s pass-through income means you’ll owe more than $1,000 in tax for the year, be sure to make quarterly estimated tax payments (using Form 1040-ES) during the year to avoid IRS penalties. 📬

With the overview above, you have the basic roadmap. Next, we’ll dive deeper into each scenario (and how to avoid common mistakes along the way).

⚠️ Common Pitfalls to Avoid When Filing LLC Taxes

Even with the steps in mind, there are some common pitfalls that trip up LLC owners. Here are crucial mistakes to avoid:

• Missing tax deadlines: LLC tax deadlines can come earlier than personal tax day. Partnership and S-corp LLC returns are due by March 15 (two months after year-end) so owners have their K-1s in time. Missing a deadline can result in IRS late-filing penalties (which can be $205 per owner, per month for late partnership returns!). Mark your calendar and consider setting reminders for all relevant deadlines.
• Not paying estimated taxes quarterly: LLC profits aren’t subject to withholding (unless you set it up yourself), so owners often must pay quarterly estimated taxes. Failing to pay quarterlies on time can lead to underpayment penalties. 💸 If your LLC income is significant, be sure to send the IRS (and state) estimated payments every quarter (April, June, September, January) to cover income and self-employment taxes.
• Mixing personal and business finances: Co-mingling your personal and LLC finances is a big no-no. Not only can it jeopardize your liability protection, it also makes tax time a nightmare. Jumbled records could cause you to miss deductions or misreport income. Always use a separate bank account and credit card for your LLC. Keeping clear records ensures you can file accurately and claim all eligible business expenses.
• Assuming you don’t need to file (when you should): Some new LLC owners mistakenly think that if the LLC had little or no income, they can skip filing. In reality, you likely still need to file. For example, a multi-member LLC must file a partnership return even if it had no profit, to report to the IRS. In one survey, 36% of self-employed workers didn’t file taxes at all (often assuming they didn’t make enough) – a costly mistake that can result in fines. Unless your LLC truly had zero activity and the IRS doesn’t expect a return, err on the side of filing. (Single-member LLCs with absolutely no income or expenses might not need to file Schedule C, but be careful; if you obtained an EIN or had any economic activity, you should file to be safe. And remember, state filing requirements can still apply even if federal doesn’t.)
• Overpaying taxes by missing deductions or elections: Don’t leave money on the table! Many small businesses overpay their taxes, often by failing to take write-offs. Common misses include the home office deduction, vehicle expenses, startup costs, and the QBI deduction. 📝 Keep thorough records of all business expenses throughout the year – every valid deduction reduces your taxable LLC income. Also, be aware of tax classification options: for instance, an LLC earning solid profits might save thousands in self-employment tax by electing S-corp status (we’ll explain how below). Failing to make a beneficial S-corp election or not knowing you could depreciate a big equipment purchase are mistakes that can cost you.
• Ignoring state and local tax obligations: Federal taxes are just part of the picture. If you forget state requirements, you could face state penalties or lose your good standing. Many states impose annual LLC fees or franchise taxes (e.g., California’s $800 fee), and some cities (like New York City) levy additional taxes on unincorporated businesses. Always file required state LLC reports, pay your state taxes, and renew any licenses on time to avoid fines or dissolution of your LLC.

By steering clear of these pitfalls, you’ll set yourself up for a smoother tax season. Now, let’s break down how LLC taxes work in different scenarios – starting with federal taxes, then state taxes.

Federal Tax Filing for LLCs

When it comes to federal taxes, an LLC is somewhat unique – the IRS doesn’t have a special “LLC tax” form or rate. Instead, the IRS treats your LLC as one of several existing entity types (sole proprietorship, partnership, S-corp, or C-corp) for tax purposes. This classification determines which forms you file and how/when you pay taxes. Let’s explore each classification in detail:

Single-Member LLC (Disregarded Entity)

If you’re the sole owner of an LLC, the IRS “disregards” the LLC as separate from you for income tax. In plain terms, you file taxes as if you were a sole proprietor of a business. The LLC’s financial activity gets reported on your personal tax return (Form 1040). Here’s how it works:

• Federal tax form: You do NOT file a separate business tax return for a single-member LLC. Instead, report all business income and expenses on Schedule C (Profit or Loss from Business) attached to your Form 1040. If your LLC had multiple income types, you might also use Schedule E (for rental income) or F (for farm income), but most operating businesses use Schedule C. The net profit or loss from Schedule C flows into your Form 1040.
• Pass-through taxation: As a disregarded entity, the LLC itself pays no income tax. Instead, 100% of the profit (or loss) “passes through” to you as the owner. You’ll pay individual income tax on the LLC profit at your personal tax rates. The good news: pass-through income can qualify for the 20% Qualified Business Income deduction, meaning you might only pay tax on 80% of that LLC profit if you meet the QBI rules.
• Self-employment tax: Since you’re self-employed, your net LLC profit is subject to self-employment tax (SE tax) in addition to regular income tax. SE tax covers Social Security and Medicare. It’s 15.3% (12.4% Social Security + 2.9% Medicare) on earnings up to the Social Security wage base (and 2.9% Medicare on anything above). You’ll calculate this on Schedule SE and include the tax with your Form 1040. For example, if your single-member LLC earned $50,000 in profit, roughly $7,650 of SE tax would be due (in addition to income tax). You can deduct half of your SE tax ($3,825 in this example) as an adjustment on your 1040.
• Example: Jane is the sole owner of a consulting LLC. In 2024 her LLC made $80,000 net profit. Jane will file her personal 1040 and attach Schedule C showing $80,000 business profit. That $80k is taxed as personal income to Jane. She’ll also file Schedule SE and pay approximately $12,240 in self-employment tax (15.3% of $80k). Jane can deduct about $6,120 of that on her 1040, and if eligible, she can also take the 20% QBI deduction (which could deduct around $16,000 from taxable income, saving further on her income taxes). The LLC itself doesn’t pay taxes separately – it’s all on Jane’s tax return. Importantly, Jane should also make quarterly estimated tax payments during the year to cover her income and SE tax, since nothing is being withheld from a paycheck.

Key takeaway: A single-member LLC is taxed just like a sole proprietorship. File a Schedule C with your 1040, pay income and self-employment taxes on the profit, and remember that you are the taxpayer (the IRS doesn’t see the LLC as separate). Keep good records of your business income and expenses, and set aside money for taxes since no one is withholding them for you.

Multiple-Member LLC (Partnership Taxation)

If your LLC has two or more members, the default federal tax classification is a partnership. The LLC must file an annual partnership tax return to report its income, but it generally does not pay income tax itself. Instead, like other pass-through entities, the profits (or losses) are allocated to the owners to include on their personal returns. Here’s what to know:

• Federal tax form: A multi-member LLC needs to file Form 1065, U.S. Return of Partnership Income each year with the IRS. This return is informational – it reports the LLC’s total income, deductions, and how profits are split, but no tax is paid with Form 1065. Form 1065 is due by March 15 (for calendar-year LLCs). Along with the 1065, the LLC issues a Schedule K-1 to each member, which shows that member’s share of the LLC’s income, deductions, and credits.
• Pass-through to owners: Each owner uses the K-1 to report their share of LLC profit on their own tax return. Typically, K-1 income from an LLC (partnership) is reported on the owner’s Schedule E (Supplemental Income) of Form 1040. For example, if you own 50% of an LLC that earned $100,000, you’ll get a K-1 showing $50,000 of ordinary business income (plus any share of other items like depreciation, credits, etc.). You’ll include that $50k on your 1040 and pay tax on it at your personal rate. The LLC itself doesn’t pay federal income tax on that $100k – the tax is entirely on the owners.
• Self-employment tax: In a multi-member LLC, active members are considered self-employed. That means each member pays self-employment tax on their share of the LLC’s income, similar to a sole proprietor. (If a member is truly a passive investor not involved in operations, they might avoid SE tax, but most LLC members actively participate and thus owe SE tax on the income share.) So, if you got that K-1 for $50k, you’ll also calculate ~15.3% SE tax on it via Schedule SE, just like the single-member case. Note: The IRS doesn’t allow LLC members to treat themselves as “limited partners” just to dodge SE tax – LLC members generally must pay SE tax on pass-through earnings. The only exception is if your LLC elected S-corp status or if you are a passive investor in certain types of income (like rental income which is usually not subject to SE tax).
• Example: ABC LLC has two members, Alice and Bob. They each own 50%. In 2024, the LLC’s net profit is $60,000. ABC LLC files Form 1065 by March 15, 2025. It reports $60k profit and allocates $30k to Alice and $30k to Bob on each of their K-1s. Neither the LLC nor the members pay tax at the time of filing Form 1065 – instead, Alice and Bob will each include the $30k on their personal 1040s (Schedule E). Each will pay federal and state income tax on that $30k. Because they both help run the business, each will also pay roughly $4,590 in self-employment tax (15.3% of $30k). If Alice or Bob had paid any estimated taxes or had withholding, they’d apply that, otherwise they need to ensure they cover these taxes with estimates.
• Operating as a partnership: Make sure you have a clear operating agreement that specifies each member’s ownership percentage and how profits are split. The IRS will expect the K-1 allocations to follow that agreement. Each member is responsible for taxes on their full share of profit even if the LLC doesn’t distribute cash to them. This is a key point: you might leave money in the business for growth, but you still owe tax on your share (a potential pitfall – plan ahead for the cash to pay the tax). 📌 Tip: Consider making quarterly tax distributions to members or set aside part of profits so everyone can pay their taxes.
• Filing details: Along with federal Form 1065, the LLC may need to file state partnership returns if your state has income tax. Also, Schedule K-1s must be delivered to members by the due date (March 15) so they can file their 1040s on time. If needed, the LLC can file an extension for Form 1065 (Form 7004) to get a 6-month extension, but members might have to estimate their K-1 income for their personal extensions.

Key takeaway: A multi-member LLC is taxed like a partnership. File Form 1065 for the LLC, give each member a K-1, and the members report the income on their own returns (paying income and self-employment taxes individually). The LLC itself doesn’t pay income tax, but it must handle the reporting. Keep communication open with your co-members about setting aside money for taxes on your shares.

LLC Electing S Corporation Status

LLCs have the flexibility to change their tax classification if advantageous. One popular option is electing to be taxed as an S Corporation. This is done by filing Form 2553 with the IRS (by March 15 of the year you want S-corp status). You’re still an LLC legally (no change to your legal structure or liability protection), but for tax purposes, the IRS treats your company like an S-corp. Why do this? In a word: to save on self-employment taxes.

Here’s how an LLC taxed as an S-corp works:

• Federal tax form: An LLC that elected S-corp status files Form 1120S, U.S. Income Tax Return for an S Corporation, each year. Form 1120S is due March 15 (same deadline as partnerships). The LLC will issue Schedule K-1 (Form 1120S) to each owner, showing their share of the business income, just like a partnership.
• Pass-through (no entity tax): An S-corp, like a partnership, is a pass-through entity. Profits pass through to owners to report on their personal returns, and there’s no corporate-level income tax due (S-corps avoid the double taxation of C-corps). Owners report the K-1 income on Schedule E of their 1040s and pay income tax accordingly.
• Owner’s salary vs. distribution: The big twist with S-corps is that owner-members can be employees of their company. In fact, the IRS requires S-corp owner-employees to be paid a “reasonable salary” for the work they do. This means the LLC (S-corp) will run a payroll for the owner(s), paying them wages just like any employee, with W-2 forms, payroll taxes withheld, etc. The wages paid are a business expense to the S-corp (reducing the pass-through profit) and are subject to Social Security and Medicare taxes (just like any job). Any remaining profit after paying those salaries is distributed to the owners as S-corp distributions (similar to dividends). These distributions are not subject to self-employment tax, which can yield tax savings.
• Tax savings potential: By splitting income into salary and distribution, owners in an S-corp can significantly reduce self-employment taxes. You only pay Social Security/Medicare on the salary portion, not on the distributions. For example, if your S-corp LLC earns $100,000 and you pay yourself a $50,000 salary, you’ll pay payroll taxes (~15.3%, split between you and the company) on that $50k only (about $7,650 total, some paid via withholding, some by the company). The remaining $50k profit flows to you as a distribution not subject to SE tax – a savings of around $7,650 compared to if you were a sole proprietor paying SE tax on the full $100k.
• Important: The IRS scrutinizes S-corps to ensure salaries are “reasonable”. You cannot just pay yourself a tiny salary and take the rest as tax-free distribution – that’s a red flag. “Reasonable” means a wage similar to what someone in your role/industry would earn for the work. If you underpay yourself to dodge taxes, the IRS can recharacterize distributions as wages (charging back payroll taxes and penalties). A good practice is to document how you arrived at your salary (hours worked, industry standards, etc.). Many accountants suggest a salary in the ballpark of 30-60% of profits for typical small businesses, but it varies.
• Example: Maria is the sole owner of an LLC that netted $120,000. She elects S-corp taxation. As an S-corp, her LLC pays her a $70,000 salary for the year (roughly what it would cost to hire someone to do her job). On that $70k, the LLC withholds income tax and payroll taxes, and will issue Maria a W-2. The remaining $50,000 of profit ($120k – $70k) is treated as a distribution to Maria as the shareholder. Maria’s S-corp LLC files Form 1120S reporting $120k income, deducting the $70k salary (and payroll tax expenses), leaving $50k taxable income. The 1120S K-1 shows $50k of pass-through income to Maria, which she’ll report on her 1040 (and pay income tax on). For the $70k W-2 salary, she and the company have paid the Social Security/Medicare taxes (around $10.7k total, split between employee and employer). Result: Maria pays payroll taxes on $70k, but avoids SE tax on the $50k distribution – a savings of about $7,650 compared to being taxed on the full $120k. She still pays regular income tax on the full amount, but she’s saved a lot on self-employment tax. Over time, these savings can outweigh the costs of running payroll and extra paperwork.
• Additional considerations: S-corps require a bit more effort – you’ll need to run payroll (you can use payroll software or a service for this 📝), file quarterly payroll tax returns, and possibly state unemployment tax, etc. Also, some benefits (like certain retirement plan contributions or fringe benefits) can get complicated in an S-corp. And not all LLCs can elect S-corp – you must have 100 or fewer owners, all U.S. persons, one class of stock (basically most small LLCs qualify). If your LLC is a single-member or a partnership LLC with eligible members, you can elect S-corp by filing Form 2553 (usually by March 15 of the first year you want it, or within 2½ months of forming the LLC).

Key takeaway: Electing S-corp status can be a tax-smart move for profitable LLCs, allowing owners to split income into salary (taxed for Social Security/Medicare) and distributions (not subject to SE tax). You’ll file an 1120S and pay yourself wages. Just ensure the salary is fair to avoid IRS issues. This election doesn’t change your LLC’s legal status – it’s purely a tax election – but it can cut your total tax bill when done correctly.

LLC Electing C Corporation Taxation

The final tax scenario is an LLC electing to be taxed as a C Corporation. This is less common for small businesses but is an option. By filing Form 8832, an LLC can choose to be treated as a regular corporation for tax purposes. In this case, the LLC is no longer pass-through; it is a separate taxpaying entity (a corporation in the eyes of the IRS). Here’s what that entails:

• Federal tax form: An LLC taxed as a C-corp files Form 1120, U.S. Corporation Income Tax Return, each year. Form 1120 is due April 15 for calendar-year companies. This return reports the corporation’s income and deductions, and unlike partnerships or S-corps, the corporation will calculate and pay income tax on its profits.
• Corporate income tax: C-corporations pay tax on their taxable income at the corporate tax rate (a flat 21% federal rate as of 2025). State corporate taxes may apply on top of that, depending on where you do business. The key point is there is now potential double taxation: first the company pays tax on its profits, then if those profits are distributed to owners as dividends, the owners pay tax on that dividend income on their personal return. This is the classic drawback of C-corps – income can be taxed twice.
• No pass-through (double taxation): Unlike default LLC status, profits do NOT automatically flow to owners’ returns each year. The LLC (now a corp) can retain earnings in the business, or pay them out as dividends. If you are the owner of a C-corp LLC, you’ll only report income on your personal return that you actually received (like wages or dividends from the company). However, any profits the company keeps are still taxed at the corporate level. When the company eventually distributes those profits (say as a dividend or if you sell your shares), you’ll face the second tax. For instance, if an LLC-turned-C-corp has $100,000 profit: the corporation would pay $21,000 in corporate tax (21%). If it then distributes the remaining $79,000 to you as a dividend, you might pay, say, 15% tax on that dividend (around $11,850). Total taxes ~$32,850, which is higher than if that $100k passed through to you directly and you paid tax once.
• Owner’s salary: If you work in the business, you can be an employee of your C-corp LLC just like in an S-corp. In fact, most active owner-shareholders will take a salary. Those wages are subject to payroll taxes, and the corporation deducts them as an expense. One strategy in C-corps is to pay out most of the profit as salaries or bonuses to owners (so the corp itself shows little profit and thus owes little corp tax). But beware, the IRS requires salaries to be reasonable here too – too high a salary can be seen as a disguised dividend. Still, paying compensation to owner-employees is a way to minimize double-taxed dividends.
• When might C-corp status make sense? Typically, small businesses avoid C-corp taxation due to double tax. But some circumstances might warrant it:
  
  • You plan to retain and reinvest profits for a long time, rather than distribute them. The company pays 21% now and keeps the money for growth, and you defer personal tax until much later.
  • You want to take advantage of certain corporate deductions or fringe benefits not available to pass-throughs. (C-corps can fully deduct employee health insurance, etc., and can choose a fiscal year different from the calendar year.)
  • You anticipate seeking venture capital or going public – investors sometimes prefer the C-corp structure.
  • The Qualified Small Business Stock (QSBS) exclusion (Section 1202) can potentially make capital gains from selling a C-corp (if it’s a qualified small business) tax-free up to $10 million. But your LLC would need to convert to a corporation in state law as well (having an LLC taxed as a C-corp might not issue “stock” that qualifies – a complex area).
  • Your net income after salaries is consistently high and you’re in a very high individual tax bracket – in rare cases, paying 21% corporate tax and then qualified dividends tax might be slightly better than paying top individual rates on all income. (This is more relevant for very high earners or certain planning scenarios.)
• Example: XYZ LLC elects C-corp status. In 2024, it earns $50,000 after business expenses. It has one owner who works in the business. XYZ pays the owner a modest salary of $30,000 (on which payroll taxes are paid). That leaves $20,000 profit in the company. The company pays 21% corporate tax on $20k = $4,200. It keeps the $15,800 after-tax profit in the company for now (no dividend this year). The owner pays income tax on her $30k salary (and payroll taxes were already taken out), but pays no tax on the $15.8k retained – yet. Next year, XYZ might use that $15.8k to buy equipment or expand. Eventually, if the owner decides to distribute profits as a dividend, she’ll pay personal tax on it at dividend rates. This illustrates how a C-corp can retain earnings at a relatively low tax cost (21% federal) if the owner doesn’t currently need all the cash. However, if XYZ had instead distributed that $15.8k immediately, the owner would pay, say, 15% on it (about $2,370), so total tax on the $20k profit would be $4,200 + $2,370 = $6,570 (effectively ~33% of the profit, higher than pass-through in many cases).
• Filing and admin: A C-corp LLC will file Form 1120 and pay any tax by April 15. You may need to file quarterly corporate estimated taxes if the company expects to owe over $500. The owner will file a personal return reporting any W-2 wages and any dividends received. Remember, if you switch to C-corp taxation and later regret it, switching back to a pass-through (by electing S-corp or reverting classification) has restrictions (you often can’t flip-flop for 5 years).

Key takeaway: LLCs can be taxed as C-corps, but this usually introduces double taxation of profits. The LLC pays corporate tax on its income, and owners pay tax on dividends. Most small LLCs avoid this unless there’s a strategic reason (like reinvesting profits or preparing for growth/financing that favors a corporate structure). For the majority of small business owners, pass-through taxation (sole prop, partnership, or S-corp) is more tax-efficient.

Federal Tax Treatment Summary

To summarize the federal tax scenarios for LLCs, here’s a comparison:

This table highlights that most LLCs are pass-through entities – only the C-corp route creates a separate tax-paying entity. Sole proprietorship and partnership LLCs face self-employment taxes on profits, whereas S-corp LLCs offer relief by only taxing salaries for Social Security/Medicare. Choosing the right classification can have a big impact on your tax bill, so consider your LLC’s profits, your administrative capacity, and consult a tax professional if needed to select the optimal status.

Now that we’ve covered federal taxes, let’s turn to state taxes, where things can vary even more.

State Tax Nuances for LLCs

Beyond the IRS, every LLC must also consider state (and sometimes local) taxes and fees. LLCs are formed under state law, and each state has its own rules for how they’re taxed. While we can’t cover all 50 states here, below are key points and examples to illustrate how state tax obligations can affect LLCs:

• State income tax on pass-through income: If your LLC’s profits pass through to you, you’ll generally need to report that income on your state individual income tax return (unless you live in a state with no personal income tax). For example, if you live in New York and your LLC earned $50k, you’ll include that on your NY resident tax return and pay state income tax on it, just as you do federally. If your LLC operates in multiple states, you might have to file multiple state returns (and apportion income accordingly) – a complex area where a CPA can help.
• State partnership or S-corp returns: Many states require a state equivalent of a partnership or S-corp return if your LLC files Form 1065 or 1120S federally. This is to report the income to the state and often to provide the state K-1 info for resident owners. Be sure to check if your state expects an LLC/partnership return or an S-corp return in addition to the personal returns of the owners.
• Annual LLC fees and franchise taxes: Most states charge LLCs an annual fee or tax for the privilege of doing business or for maintaining the LLC. These are not income taxes, but rather fees or franchise taxes. They can be flat fees or based on some measure like income or capital. For instance:
  
  • California: Imposes a $800 annual franchise tax for every LLC (even with no income). Additional LLC fee if gross revenue > $250k. LLC income passes through to owners for CA personal income tax. (High cost state for LLCs 😟.)
  • Texas: Has no personal income tax, but it does have a state franchise tax (margin tax) for businesses. LLCs in Texas must file a franchise tax report and pay a tax if revenues exceed the “no tax due” threshold (which is $2.47 million for 2024). Below that, they file an informational report but owe no tax. Above that, the tax is a percentage of taxable margin (around 0.375% for most, 0.75% for some entities). In short, a small Texas LLC often owes zero state tax (aside from a $0 report), whereas larger ones pay a modest percentage.
  • New York: Charges an annual filing fee for LLCs (and partnerships) that have income from New York. The fee ranges from $25 to $4,500 based on the LLC’s New York-source gross income. For example, an LLC with NY income up to $100k pays $25; $500k income pays $175; $5 million income pays $3,000; above $25 million pays $4,500. This fee is due annually (Form IT-204-LL). New York LLCs also of course pass through income to owners who pay NY personal income tax. Additionally, if you do business in New York City, be aware of the New York City Unincorporated Business Tax (UBT) – a 4% tax on net income of unincorporated businesses (including LLCs taxed as sole props or partnerships) above a small exemption. Many small LLCs can avoid UBT (for instance, if your income is from services performed by the owner, UBT might not apply), but it’s a factor for certain businesses in NYC.
  • Nevada, Wyoming, and other no-income-tax states: A few states have no state income tax at all (e.g., Nevada, Wyoming, South Dakota, Texas, Florida). In these states, you don’t pay state income tax on LLC profits – great. However, some still have annual business fees. For example, Wyoming has no corporate or personal income tax and it charges a very low annual license tax for LLCs (e.g., $60 minimum). Nevada has no income tax but does have a business license fee and an annual report fee (around $350 combined per year). The absence of income tax is why states like Wyoming and Nevada are popular for forming LLCs, but if your business is actually operating elsewhere, you still have to pay taxes where you earn the money (forming in a no-tax state doesn’t let you escape a high-tax state if you’re actually doing business in that state).
  • Illinois and others: Some states tax LLCs via a personal income tax and have an additional replacement tax or franchise tax. For example, Illinois subjects pass-through income to personal tax and also levies a 1.5% replacement tax on partnership income (except S-corps). Tennessee until recently had a business tax on LLCs – a tax which has been phased out.
• State withholding or composite returns: If your LLC has non-resident members (e.g., the LLC operates in State A but an owner lives in State B), State A might require the LLC to withhold state income tax on the non-resident’s share or file a composite tax return on their behalf. This ensures the state collects tax on income earned within its borders. This is more advanced, but worth noting if your LLC’s ownership or operations cross state lines.
• Local taxes: Check for any local business taxes. For instance, some cities/counties have a gross receipts tax, local business license tax, or personal property tax on business assets. An LLC might need to file a tangible property tax return if it owns equipment (common in some states). Also, remember sales tax – if your LLC sells products or certain services, you likely need to collect and remit sales tax to the state. This isn’t an income tax, but a compliance obligation often handled alongside taxes.
• Annual reports: Apart from taxes, virtually all LLCs have to file an annual report or statement of information with the state corporate filing office (often separate from the tax department) and pay a fee. This keeps your LLC in good standing. For example, an LLC in Florida files an annual report with a $138 fee. While not a “tax,” forgetting this can lead to administrative dissolution of the LLC. Mark those annual report due dates in your calendar too!

To give a snapshot of how different states approach LLC taxes, here’s a quick comparison:

As you can see, state taxes for LLCs can range from a simple $0 (in no-income-tax states) to hefty fees (CA) or complex calculations (NY fees, TX franchise). Always check your own state’s requirements via the state tax authority or revenue department. Many state tax websites have sections for small business/LLC obligations. Compliance with state taxes and fees is just as important as federal – neglecting them can lead to penalties, interest, or your LLC losing its good standing.

Pro tip: If your LLC operates in multiple states (aka nexus in those states), consider getting professional advice on multi-state filing. You may need to file a state return in each state where you have business income or pay state-specific LLC fees.

Finally, keep in mind that tax laws change. For instance, some states waived or reduced fees (CA had a temporary first-year $0 LLC tax which expired). Always get up-to-date info each year.

Having covered both federal and state aspects of LLC taxation, you should have a solid understanding of what it takes to file LLC taxes. To close out, let’s address some frequently asked questions that often arise for LLC owners:

FAQs: Frequently Asked Questions

Q: Do I need to file taxes for my LLC if it had no income?
A: Yes. Even with no revenue, a multi-member LLC must file a partnership return (Form 1065) to report zero income. A single-member LLC with absolutely no activity may skip Schedule C, but check state requirements – some states still charge minimum LLC fees.

Q: Can a single-member LLC be taxed as an S-corp?
A: Yes. A single-member LLC can elect S Corporation status by filing Form 2553 with the IRS. This lets you file Form 1120S and pay yourself a salary, potentially saving on self-employment tax if done correctly.

Q: Does an LLC pay quarterly estimated taxes?
A: Yes. LLC owners typically need to pay quarterly estimated taxes if they expect to owe > $1,000 in federal tax for the year. This covers income and self-employment taxes. (An LLC taxed as a C-corp would pay its own quarterly estimates if needed.)

Q: Are LLC taxes filed separately from my personal taxes?
A: No – not for pass-through LLCs. If your LLC is a disregarded entity or partnership, the income is reported on your personal tax return (with an attached Schedule C or K-1). Only an LLC taxed as a C-corp files a separate business tax return.

Q: Can I file my LLC taxes on my own, or do I need a CPA?
A: Yes, you can file them on your own, especially if it’s a simple single-member LLC (many owners use tax software). For multi-member, S-corp, or complex situations, it’s possible to DIY with knowledge, but many owners opt to use a CPA or tax professional to ensure everything is done correctly.

Q: Will my LLC profits be taxed twice?
A: No – not by default. Standard LLC taxation is pass-through (taxed once to owners). Double taxation only happens if you choose C-corp taxation (then profits are taxed at the corporate level and again if paid out as dividends). Electing S-corp or remaining default avoids this issue.

Q: Do LLC owners have to pay self-employment tax on all profits?
A: Yes – in general. If your LLC is taxed as a sole prop or partnership, profits are subject to self-employment tax (15.3%). The exception is if you elected S-corp: then you pay SE tax only on your salary, not on distributions. LLCs taxed as C-corps don’t have SE tax on profits (but have other taxes as discussed).

Q: What forms do I file for a multi-member LLC?
A: The LLC must file Form 1065 with the IRS and issue Schedule K-1s to each member. Each member then uses the K-1 to file their own Form 1040 (reporting the partnership income on Schedule E). Don’t forget any required state partnership returns.

Q: If I reinvest all my LLC’s profit back into the business, do I still pay taxes on it?
A: Yes. For pass-through LLCs, it doesn’t matter if you leave the money in the business account or not – you’re taxed on the profit allocated to you, regardless of distribution. (For a C-corp LLC, the company would pay corporate tax on retained earnings, and you’d pay personal tax later when you take it out.)

Q: Do I need an EIN for my LLC to file taxes?
A: It depends. A single-member LLC without employees can use the owner’s Social Security Number for taxes (the IRS treats it as you). Multi-member LLCs and any LLC with employees should obtain an EIN (Employer Identification Number) from the IRS – you’ll need it for filing the partnership return, issuing K-1s, W-2s, etc. Even single-member LLCs often get an EIN for banking and privacy reasons, and you’ll need one if you ever elect S-corp status.