When you start an LLC, you have multiple options for how you handle taxes. Figuring out the best way to file taxes each year can be confusing, especially if you’re filing business taxes for an LLC for the first time. There are different ways your LLC can be taxed, like a sole proprietorship, partnership or corporation. Each has its own rules for federal and state taxes. If you choose to get help from a tax pro, the average cost of tax preparation for your LLC taxes will vary.

Table of contents

Key Takeaways:...Read more

What is an LLC?...Read more

How to file business taxes for an LLC...Read more

Do I need to file quarterly taxes for my LLC?...Read more

Filing single-member LLC taxes...Read more

Filing multi-member LLC taxes...Read more

How to file LLC taxes as an S Corp...Read more

Navigating LLC taxes as an C Corp...Read more

Key Takeaways:

LLCs can be taxed as a sole proprietor, partnership or a corporation.
LLC owners will have to pay estimated taxes if they owe over $1,000.
The LLC income tax rate will depend on how you choose to pay taxes.

What is an LLC?

An LLC is a more complicated business structure when compared to sole proprietorships. Self-employed individuals may decide to switch to an LLC if their business is growing too fast or if they want to hire employees. So, what does LLC stand for? It's a Limited Liability Corporation. The owners of an LLC are separate from the business, meaning they pay taxes on their personal returns or choose to be taxed as a C Corp. If you’re wondering how to start an LLC, the process can be lengthy. You’ll need to register as a new business with a unique name, apply for certain business licenses and open a new bank account. You might also have to do some research into state-specific business laws.

How to file business taxes for an LLC

If it's your first time filing business taxes for an LLC, here's what you need to know. First, you need to understand that the way you file taxes for your LLC largely depends on how your LLC is structured. If your LLC is a single-member entity, it's treated like a sole proprietorship. This means you’ll file your business income and expenses on Schedule C, which is part of your personal tax return. For multi-member LLCs, the IRS treats it as a partnership by default. This means filing with LLC tax forms like Form 1065 and Schedule K-1. The LLC income tax rate isn't fixed; it depends on your total income and tax bracket. This makes keeping meticulous records of your earnings and expenses essential throughout the year. If you're a single-member LLC, you can use a tax bracket calculator to find your income tax bracket. If you're thinking about the average cost of tax preparation for an LLC, this can vary significantly depending on your tax situation, your line of work and the state you live in. Make sure to do enough research to find the method that works best for you.

Infographic entitled How To File LLC Taxes showing the many ways to file LLC business taxes.

Do I need to file quarterly taxes for my LLC?

If you're asking "Do I need to file quarterly taxes for my LLC?", you're not alone. LLC taxes can be confusing at the best of times. As an LLC’s income typically passes through to the owners who then report it on their personal tax returns, the IRS expects you to pay income taxes on that income as you earn it, not just at the end of the year. That’s where quarterly taxes come in. If you expect to owe $1,000 or more in taxes when you file your annual return, you need to make estimated quarterly tax payments. This applies to both single-member and multi-member LLCs. The LLC income tax rate you’ll be subject to depends on your overall income and filing status. Paying quarterly taxes helps you avoid underpayment penalties. You can use a quarterly tax calculator to help you calculate your tax liability and estimated payments.

Filing single-member LLC taxes

If you're filing business taxes for an LLC for the first time, it’s important to know that the IRS treats a single-member LLC like a sole proprietorship. This means your LLC doesn't pay taxes separately; instead, the income and expenses flow through to your personal tax return. Here’s how to file LLC taxes– you’ll use Schedule C, the main form for solo self-employed individuals and the standard Form 1040. This LLC tax form helps you report all your business income and deductions. For example, if you have a gross income of $50,000 and incurred $20,000 in business expenses, you'd report a net income of $30,000 on Schedule C. Generally, the average cost of tax preparation for an LLC if you're filing as a single-member would be on the lower side as you're just one person. However, it could get more expensive if you have a complex tax situation or are claiming a lot of credits and deductions. When comparing LLC vs sole proprietorship, remember that while both are reported on your personal tax return, an LLC provides more liability protection. So if your business gets in any legal trouble, your personal assets are protected.

Infographic entitled LLC Tax Deductions listing six expenses that can lower LLC taxes.

Filing multi-member LLC taxes

When you have a multi-member LLC, the IRS treats it as a partnership. This means the LLC itself doesn't pay income taxes, and the profits and losses pass through to the members who report their share on their personal returns. When you’re filing as a partnership, remember that your returns will be due on March 15. Here’s how to handle LLC taxes for a multi-member LLC. First, you need to file Form 1065, the partnership tax return. This form reports the LLC’s total income, deductions and credits. Each member of the LLC will also get Schedule K-1, which reports their share of the income or loss. For example, if your LLC earns $200,000 in profits and has four partners, each partner would report $50,000 on their individual tax return. The LLC income tax rate for each member varies based on their personal income and tax bracket. If a member has other substantial income sources, their share of the LLC’s profit might be taxed at a higher rate compared to another member whose only income is from the LLC.

How to file LLC taxes as an S Corp

Filing LLC taxes as an S Corp can offer some unique advantages, but it’s important to understand the differences between an S Corp vs LLC. When you choose S Corp status for your LLC, you can potentially save on self-employment taxes, which is a big perk for many business owners. To start, electing S Corp status means you’ll need to file Form 2553 with the IRS. This changes how your LLC’s income is taxed. Instead of all profits being subject to self-employment tax, you’ll pay yourself a reasonable salary, which is subject to payroll taxes. Any remaining profits can be taken as dividends, which are not subject to self-employment tax. For example, imagine you own an LLC that earns $100,000 a year. If you're taxed as a sole proprietor, you might pay self-employment taxes on the entire $100,000. But if you choose an S Corp status, you could pay yourself a $60,000 salary and take the remaining $40,000 as dividends, potentially reducing your SE tax liability. This doesn’t mean S Corp status is right for everyone. There’s additional paperwork and you’ll need to file Form 1120-S for your corporate tax return, along with issuing W-2s for your salary.

Infographic entitled Benefits Of Filing LLC Taxes As An S Corp for anyone filing business taxes for an LLC for the first time.

Navigating LLC taxes as an C Corp

Filing LLC taxes as a C Corp can be a good choice for some businesses, but it changes how you pay taxes. When an LLC is taxed as a C Corp, it becomes a separate tax entity and pays corporate taxes on its profits at the current rate of 21%. To make your LLC into a C Corp, you need to file Form 8832 with the IRS. After that, your LLC will file Form 1120, the corporate tax return. This setup can be beneficial if you want to keep some profits in the business for growth, rather than passing all the income through to your personal tax return. Let’s say you own an LLC that makes $150,000 in profit. If your LLC is taxed as a pass-through entity, you would have to report all $150,000 on your personal return, which could put you in a higher tax bracket. By electing C Corp status, the LLC pays 21% corporate tax on the $150,000, which is $31,500. You can then decide how much of the remaining profit to take as a salary or dividends. However, look out for double taxation. When the C Corp distributes dividends to you, those dividends will be taxed again at the personal level. This is a significant consideration when weighing the benefits of filing LLC taxes as a C Corp. FlyFin’s expert CPAs offer unlimited tax support on the app, including answering questions about how to start an LLC and guiding users filing business taxes for an LLC for the first time. They can also prepare and file your returns, making sure you’re avoiding penalties for misfiling. AI also scans your expenses to find all your deductions, saving you the most possible.

LLC tax loopholes

LLCs can use tax loopholes to lower taxable income and their tax bill. FlyFin offer expert CPA support to handle business taxes on the app.

How To File Taxes For An LLC: All You Need To Know