An LLC, or limited liability company, is a business structure created by individual states that has features similar to both a corporation and a partnership. Like a corporation, an LLC member has limited liability for the debts and actions of the LLC. Like a partnership, income and losses are passed through to the owners, rather than being the responsibility of the LLC itself. As such, the Internal Revenue Service does not recognize an LLC as a separate business entity, and LLC owners must categorize their company as a corporation, a partnership or a sole proprietorship for federal tax-filing purposes.
Tips
The method you use for filing your LLC's taxes is primarily dependent on whether you are classified as a single-member LLC or corporation. You will use Form 1040 to report income from your single-member LLC, while Form 1120 or 1120S can be used to report income from your corporation.
Determine the Appropriate LLC Filing Status
If you are a single-member LLC, you can file with the IRS as a corporation or sole proprietor but not as a partnership. If you are a multiple-member LLC, you can file as a partnership or a corporation. You may want to consult with a tax adviser to determine what filing status offers you the most tax advantages.
File the Required Forms Correctly
Follow IRS regulations regarding how to correctly file LLC forms. If you are filing an individual LLC return, you should report LLC income and expenses directly on Form 1040 through the use of the appropriate schedule or schedules: C, "Profit or Loss from Business"; E, "Supplemental Income and Loss"; and F, "Profit or Loss from Farming." If you are filing your LLC taxes as a corporation, you should report LLC income and expenses on the corporate return, which is usually Form 1120 or Form 1120S, "U.S. Corporation Income Tax Return." If your LLC has more than one member, you must file a partnership return using Form 1065, "U.S. Return of Partnership Income."
Verify Which Taxes You Are Required to Pay
Most business owners filing schedules C or E have to pay self-employment taxes. LLC members filing partnership returns generally have to pay self-employment taxes on their share of partnership earnings, although members classified as limited partners pay self-employment tax only if the LLC pays them for services.
Determine if You Should File Quarterly
In most cases, an LLC only has to file an annual tax return, since income and losses are passed on to the individual owner. However, if your LLC has a tax responsibility of $1,000 or more in one quarter, filing quarterly LLC taxes might be a requirement. Keeping track of your income and owed taxes will help you determine if you need to pay taxes quarterly or annually.
References
- IRS Publication 3402: Taxation of Limited Liability Companies
- IRS: Limited Liability Company (LLC)
- Internal Revenue Service. "Tax Information For Partnerships." Accessed July 19, 2020.
- Internal Revenue Service. "Instructions for Form 1065: U.S. Return of Partnership Income." Accessed July 19, 2020.
- Internal Revenue Service. " Form 1065, U.S. Return of Partnership Income," page 2. Accessed July 19, 2020.
- Internal Revenue Service. " Form 1065, U.S. Return of Partnership Income," pages 3-4. Accessed July 19, 2020.
- Internal Revenue Service. " Form 1065, U.S. Return of Partnership Income," page 5. Accessed July 19, 2020.
- Internal Revenue Service. " Form 1065, U.S. Return of Partnership Income," page 6. Accessed July 19, 2020.
- Internal Revenue Service. "Instructions for Schedule M-3 (Form 1065)." Accessed July 19, 2020.
- Internal Revenue Service. "Schedule E: Supplemental Income and Loss," page 2. Accessed July 19, 2020.
- Internal Revenue Service. "Schedule D: Capital Gains and Losses," pages 1-2. Accessed July 19, 2020.
- Internal Revenue Service. "Form 8949: Sales and Other Dispositions of Capital Assets," pages 1-2. Accessed July 19, 2020.
- Internal Revenue Service. "Instructions for Form 1065." Accessed July 19, 2020.
- Internal Revenue Service. "Understanding Your CP162 Notice." Accessed July 19, 2020.
Writer Bio
John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.