As a small business, filing your annual tax return will look a bit different depending on your business structure. As an independent contractor, for instance, tax filing is relatively straightforward and a part of the process of filing your personal tax return. However, if your business is registered as an LLC, there are a few other nuances involved in filing your taxes.
What is an LLC?
An LLC—or “Limited Liability Company”—is a flexible type of business entity that offers greater protection than a sole proprietorship by legally and financially separating you from your business. The IRS classifies LLCs differently based on the number of members and the specific LLC structure you choose as the owner. As an LLC, you can choose one of several classifications:
- Single-member LLC
- Multi-member LLC
- Corporation
- S Corporation
- C Corporation
Consider registering your business as an LLC if you feel the extra protection would be valuable for shielding your personal assets from any debts incurred or lawsuits filed against your business. Starting an LLC is a great way to take your business to the next level, but if you’ve been operating as a sole proprietor until now, you’ll want to make sure you understand the different requirements for tax filing.
Can LLCs File Taxes on Their Own?
As an LLC, you can file taxes on your own. There is no legal requirement to hire or work with a tax professional for filing. If, however, you are concerned about filing your taxes correctly, or would simply prefer to outsource, a Certified Professional Accountant (CPA) can support your tax filing needs. Even if you decide to prepare your LLC taxes yourself, hiring a CPA even just as a consultant can make it much easier to navigate any obstacles you encounter throughout the process.
Tax Filing Requirements for LLCs
LLCs have tax filing responsibilities throughout the year, not just for the annual tax return. These tax filing requirements will vary depending on your classification and where your business is located.
Quarterly Estimated Self-Employment Taxes
As an LLC member or owner, you are not legally considered an “employee.” As far as taxes are concerned, this means there is no employer withholding Social Security and Medicare contributions from your paycheck, so you must pay these taxes yourself.
Self-employment taxes are due each fiscal quarter from every LLC member who is not otherwise exempt from paying. LLC members who are required to pay the self-employment tax for their share of the profits include any active owner who is involved in the management of the business. Inactive LLC owners, such as those who are only financially invested but not actually working for the LLC, are typically exempt from paying these taxes.
The self-employment tax rate for 2023 totals 15.3% and includes the following:
- 12.4% on earnings up to $147,000 for Social Security
- 2.9% on all earnings for Medicare
- An additional 0.9% tax rate for Medicare on income totaling above $250,000 when married filing jointly, $125,000 when married filing separately, or $200,000 for all other filing statuses.
State Taxes
In most cases, LLCs pay state taxes as part of their personal tax return. However, some states include additional income-based taxes or annual fees. While some states, like California, charge additional income taxes for businesses making more than $250,000 a year, others have no income tax at all (like Washington).
Depending on your type of business, your LLC may also be subject to a franchise tax, sometimes known as an “annual registration fee” or “renewal fee.” This is an annual fee LLCs must pay regardless of income.
What about LLC Tax Deductions?
To significantly reduce your taxable income, you can deduct several business-specific expenses as an LLC. These small business tax deductions may include start-up costs, car expenses, business-related meals and travel, equipment, advertising costs, and other debts and fees. Additionally, as part of the Tax Cuts and Jobs Act, an LLC filing as a pass-through entity can deduct up to 20% of their qualifying business income for even more tax savings!
How to File Business Taxes for an LLC
Although you have extra separation from your business legally and financially, your LLC may not be considered separate from you for tax purposes. The IRS doesn’t classify LLCs as having unique tax status, meaning your business will fall into one of three taxation categories—sole proprietorship, partnership, or corporation—depending on how many owners there are.
Single-Member LLC
If you are the sole owner of your business, then regardless of being registered as an LLC, you will file your taxes as a sole proprietorship unless you elect to file differently.
In order to file business taxes as a single-member LLC, you will file a Schedule C with your personal tax return (Form 1040) by April 15, reporting your earnings and deductions. The one exception to this is when an LLC owns rental properties, in which case you will need to file rental property information on Part I of Schedule E instead of Schedule C.
When operating your business as a solo act, you should keep a thorough self-employment ledger to track your income and expenses. This will make filling out your Schedule C at the end of the year significantly easier!
Multi-Member LLC
If your LLC is owned by more than one person, it is classified by the IRS as a partnership by default. Partnerships have a few different forms to fill out:
Form 1065 – The “U.S. Return of Partnership Income” form is required for all partnerships to file and covers all income, gains, losses, deductions, and credits for the business as a whole. This form is filed annually by the LLC, not the members.
Schedule K-1 – This form is filed by the LLC as part of Form 1065 and it should also be given to each member of the LLC, similar to how a client must send a 1099 to an independent contractor. This form tells each member what their share of the profits and losses are for the purpose of filing alongside their personal tax return.
Schedule E (Form 1040) – Once they have received Schedule K-1, LLC members must file Schedule E to report that information alongside their personal tax return.
Corporation
Although filing as a sole proprietor or as a partnership are the most common options for an LLC, you may also opt to file as either an S Corporation or a C Corporation. You may opt to file as a corporation if you’re looking for even further separation between yourself and your business, as corporations file taxes separately from personal taxes. Your business will still legally be structured as an LLC, though—it will not suddenly transform into a corporation because of your filing selection.
Filing as an S Corporation
To file as an S Corporation, start by submitting Form 2553 to the IRS. After they approve your election, you can start to prepare for this unique tax filing situation. Unlike a C Corporation, which pays taxes separately from you personally, an S Corp is still a “pass-through entity” that doesn’t actually pay the taxes.
The steps here are similar to filing as a Partnership, where each owner receives a Schedule K-1, reports the information in Schedule E, and files it with Form 1040. However, the form filed by the business is different. Whereas partnerships file Form 1065, an S Corp files Form 1120-S.
Filing as a C Corporation
If you decide to file as a C Corporation, you’ll need to actively choose to do so with the IRS by submitting Form 8832 first. Once you are all set to file as a C Corp, you will file Form 1120 for your business’s tax return. Keep in mind that if you elect to do this, you’ll have to comply with C Corporation income tax rules for a time. However, being taxed in this manner allows for an unlimited number of shareholders, which is useful if you’re raising funds or planning to go public.
What is the LLC Tax Filing Deadline in 2024?
Tax filing deadlines for LLCs vary slightly for each form and depending on how you choose to file. Generally, you can expect deadlines to fall in March or April. Here are all the due dates:
- Single-Member LLC (Sole Proprietor Filing Status): All forms are due by April 15, 2024
- Multi-Member LLC (Partnership Filing Status): Form 1065 and Schedule K-1 are due by March 15, 2024. Schedule E is due by April 15, 2024.
- C Corporation: Form 1120 is due by April 15, 2024.
- S Corporation: Form 1120-S and Schedule K-1 are due by March 15, 2024.
Filing LLC Taxes for the First Time on Your Own?
Even if you’re filing your LLC taxes on your own, you don’t have to do so completely on your own! With a write-off tracker, pre-filled IRS forms (including Forms 1120-S, 1065 and Schedule C), and accounting software seamlessly integrated with your business banking, Lili’s Tax Preparation software offers the difference between ‘filing freedom’ and ‘tax-trauma’.
