As an LLC owner, you are responsible for filing your business taxes. This can seem daunting, but it doesn’t have to be! This blog post will walk you through how to file business taxes for your LLC.
We will cover the tax options available to you and how to choose the one best for your business. We will also discuss self-employment taxes and how to pay them. Learn more and get started today!
How Limited Liability Company LLC Income Tax Works
The Internal Revenue Service (IRS) does not use an LLC designation when you file your Federal income business taxes.
Depending on your business structure, your LLC will file a business tax return using existing Federal designations, which include the following:
- Sole Proprietorship
- Partnership
- S Corp
- C Corp
Most LLCs are pass-through entities, meaning you pay self-employment tax and file LLC taxes on your own personal tax returns. However, an LLC filing as a C corporation is not a pass-through entity and works differently.
Let’s look at how it all works to make an LLC tax filing.
How to Pay Federal Income Taxes on Business Income
Paying your income taxes each year doesn’t have to be complicated. Most LLC tax returns are easy if you understand your tax status.
Single-Member LLC
As one owner of an LLC, you can file taxes as a sole proprietorship or a “disregarded entity.” As a sole owner, your LLC does not pay taxes.
Instead, taxation on the LLC’s profits passes to you, the business owner. That is why most limited liability companies are called pass-through entities.
LLCs taxed as C corporations earn income and pay taxes at the corporate and individual shareholder levels. However, sole proprietors of single-member LLCs only pay income tax on their personal returns.
A sole proprietorship or single-member LLC pays taxes each tax year through the owner’s individual income tax return as a pass-through entity.
Your tax returns may include the forms listed here:
- 1040 SE
- File Schedule C 1040-SR or 1040, Profit or Loss from Business (Sole Proprietorship)
- Schedule E 1040-SR or 1040, Supplemental Income or Loss (such as rental properties)
- Schedule F 1040 or 1040-SR, Profit or Loss from Farming
As a single-member LLC, the IRS recommends using Form 1040-ES to calculate estimated tax payments using quarterly vouchers or the Electronic Federal Tax Payment System (EFTPS). Estimated tax is how you pay tax on income that isn’t subject to withholding, such as self-employment.
The self-employment tax rate is 15.3%.
- 12.4% for social security (old-age, survivors, and disability insurance)
- 2.9% for Medicare taxes (hospital insurance)” (1)
Talk with us at Hopler, Wilms, and Hanna to ensure you and your business pays appropriate tax amounts. Often, a restructuring of your business type can help you pay less.
Multi-Member LLCs ( Or A Married Couple in North Carolina)
An LLC’s owners are called members. Multi-member LLCs file Federal income taxes on their personal tax returns as a partnership (whether two members or five). Your partnership may also file for corporation status by filing IRS form 8832 to make an entity classification election ahead of time.
A partnership LLC does not pay tax itself. However, it must file an informational return for federal tax purposes. You may use Form 1065, U.S. Return of Partnership Income to report the LLC partnership taxes.
Federal taxes pass through to the business owners, with each member-owner paying tax based on their percentage of ownership.
Each owner files a personal tax return each tax year showing their share of partnership income, credits, and deductions on Schedule K-1 (1065), Partner’s Share of Income, Deductions, Credits, etc.
Also, consider these tips while filing your multi-member LLC taxes:
- Generally, members of LLCs filing partnership returns pay self-employment tax on their share of partnership earnings. (File these taxes quarterly using EFTTPS.)
- It’s also crucial to realize that you pay taxes on your share of taxable income whether you received the earnings in a distribution or not.
- If you split your profit and loss percentages in ways other than straight allocation, you’ll need to look at IRS rules for special allocations.
Corporate LLCs
S corporations are pass-through entities sending their income and losses to their members for federal tax purposes. The member-owners report their share of profit and loss on their personal tax return.
To file Income Tax as an S corporation member LLC, use:
C corporations pay a 21% tax rate on profits. Shareholders also pay individual income tax on dividends as capital gains.
Tax Deductions for Pass-Through Entities in 2022
A business owner may deduct up to 20 percent of their qualified business income from each pass-through business.
Generally, total taxable income in 2022 must be under $170,050 for single filers or $340,100 for joint filers to qualify. In 2023, the limits will rise to $182,100 for single filers and $364,200 for joint filers.
If you’re over that limit, IRS rules determine whether your business income qualifies for a full or partial deduction. (2)
Electing Corporate Taxation for Your LLC
If your LLC holds onto distributions to build your business, you may wish to file for corporation status by filing IRS form 8832 ahead of time. Corporations pay taxes, and so do their shareholders. However, the corporation does not pay taxes on retained profits.
Even small business owners may change their LLC tax structure for income tax purposes and file taxes as a corporation by electing the IRS form 8832 ahead of time.
File State Taxes for LLCs in North Carolina
You can make estimated monthly or quarterly state income tax payments using the NCDOR portal.
You must pay state income taxes if you sell products from your LLC. If your customers pay sales tax on your products, you’ll need to file for a seller’s permit from the NC Secretary of State after receiving your EIN.
Our Experienced Business Attorneys Can Help
If you’re considering which business structure is right for your venture, contact us at Hopler, Wilms, and Hanna. We can help you determine how to file business taxes for your LLC and how to minimize your tax liability.
Get in touch today to find out how to save money as an LLC in North Carolina!