An LLC is a legal entity that protects its owners from personal liability. An LLC is taxed as a pass-through entity. This means that the LLC is exempt from paying business taxes. Profits earned by LLC members are taxed. LLCs may be subject to additional taxes imposed by state and local governments, as well as choose to be taxed as a corporation instead of a pass-through entity. 

There are various kinds of LLC taxes that the federal, state, and local governments are in charge of collecting. The structure of your business entity determines the amount of taxes you owe. 

Read on as we go over crucial information on LLC taxes, and how these companies pay and handle them.

Single-Member LLC Income Taxes

A single-member LLC is automatically disregarded by the IRS. A disregarded entity is not required to file a separate income tax return to report its income and expenses. This information will be included in the tax return of the member.

The sole proprietor must file Schedule C of Form 1040 to report business income and expenses. If the LLC makes a profit after deducting business expenses, the owner must pay taxes to the IRS at their personal income tax rate. Otherwise, the owner can deduct it from their personal income. 

Additionally, LLCs are subject to a tax or fee in some states.

Multi-Member LLC Income Taxes

Pass-through entities are multi-member limited liability companies. This means that the LLC, as a single-member LLC, is tax-exempt. Rather, each member's income is taxed based on their ownership stake in the LLC. As a result, the tax rate of the LLC is determined by the tax bracket of each member. 

The IRS requires a multi-member LLC to file certain tax forms, including Form 1065, United States Return of Partnership Income, an annual information return. Each LLC owner must also receive a completed Schedule K-1 by March 15. Schedule K-1 breaks down each owner's share of the LLC's income, losses, credits, and deductions. Each owner's personal income tax return will include a Schedule K-1. 

Furthermore, state and local governments levy taxes that are passed on to the general public. Schedule K-1 and Form 1065 are unique to each state.

Choosing Your LLC’s Tax Status

Members of an LLC can choose whether to be taxed as a C-corporation or an S-corporation. Amendments to the LLC operating agreement must be approved and consented to by the voters. 

By filing Form 8832, your LLC can elect to be taxed as a C-corporation. As a result, your LLC will be taxed at the federal corporate rate of 21%. Form 1120, Corporation Income Tax Return for the United States of America, must be completed. You'll also have to pay state and local corporate taxes, depending on where you live. 

To convert to an S-corporation, complete IRS Form 2553. It is taxed similarly to an LLC, but there are some differences in how salaries and dividends are taxed. An S-corp must file Form 1120S, S-Corporation Income Tax Return, with the IRS. 

The legal status of your LLC is unaffected by the choice of corporate tax status. Legally, your company will remain an LLC. A corporation's income is taxed differently than that of an LLC, and it is eligible for more deductions and credits. 

Payroll Taxation of LLCs

Employed LLCs are required to collect and remit payroll taxes. Employers are obligated to pay unemployment taxes. In addition to income taxes, employers are required to withhold the employee portion of these taxes. 

IRS Forms 940 and 941 are used to file payroll tax returns. Annually, Form 940 is used to report an employer's unemployment tax obligations. On a quarterly basis, 941 forms are used by businesses to report withheld income taxes, social security taxes, and Medicare taxes. 

Notably, when you file your taxes, these taxes are not deducted from your refund. The IRS collects payroll taxes on a pay-as-you-go basis, which means they must be deposited throughout the year. The Electronic Federal Tax Payment System (EFTPS) protocol can be used to make deposits. These taxes are deposited monthly or biweekly, depending on your tax liability.

Conclusion

When deciding on a business entity, it’s safe to say that tax considerations are critical. Plan ahead of time for your  LLC taxes. This way, you can easily determine how much you owe and how much you have available to save. 

Are you in need of business tax filing services? Tottax is a full-service tax and accounting firm that assists small businesses and their owners with accounting. Work with us today!