IRS Tax Filing For LLC Business Or Company
Companies by default are categorized as C corporations and are subjected to double taxation as it pays corporate income tax on its profits, and then its shareholders also pay tax on the salary and dividends they receive. If you choose to file as a corporate tax for your LLC, the IRS will treat your business as a separate taxpaying entity. If you need any assistance for File Taxes For LLC With No Income Call Toll Free 📞 1-855-481-5333 to get help from TAX experts .
Businesses that want to avoid this double taxation choose not to be taxed at the corporate level. Instead, the company’s profits and losses are “Passed Through” to its owners (called members), shareholders’ pay tax on an individual level as a part of “Personal Income Tax”. A limited liability company of this kind is, therefore, is not regarded as a taxing entity.S corps are pass-through taxation entities that file an informational federal return (Form 1120S)
Federal TAX LLC Business Types
For federal tax purposes, there is no separate classification as “LLC taxation” class. LLCs are taxed like usual businesses. There are 4 business types:
- Sole Proprietorship
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LLC Taxed As Sole Proprietorship / Single Member LLC
For single-member LLCs, this is the default IRS tax classification. There is no need to file anything to elect as a sole proprietor. The profit or loss for such an LLC will “flow-through” to the owner who has to file an individual personal income return on Form 1040.
Owners of a single member LLCs are personally responsible for all tax payments and filings. They must complete Schedule C attachment only for reporting the income and deductions related to their business activities. But any income from the LLC is included with the other personal income of the owner to be reported on Form 1040.
Multi-Member LLC / Partnership filing requirements
For multi-member LLCs, this is a default classification and such LLCs are subject to the partnership tax rules. They do not pay tax, except prepare an annual partnership tax returns on IRS Form 1065 to inform the IRS about all income, deductions, and credits. Then Schedule K-1 is prepared for each partner by the LLC reporting their individual gains or losses at the end and a copy of K-1s is provided to each member. K-1 is to be annexed with their individual return. Here again, the profit or loss “flow-through” to the owners and each individual owner files his or her return on Form 1040 with K-1.
Corporate Filing Requirements
Many LLCs decide to elect corporate tax for themselves where their business is treated as a separate taxpayer entity. As a result, the business becomes solely responsible for reporting all income and deductions on Form 1120 and pay the relevant income tax.Federal Taxes Efile Online is very simple process .
There are advantages to this, however, a drawback to corporate treatment is that business earnings are taxed twice. The tax is filed at the company level as a corporate tax return, and tax is also imposed on the owners on salary and/or dividend received which they file on personal Form 1040s.
LLC Taxed as S-Corporation
To be treated as S-Corporation, the LLC needs to file Form 2553, and then it doesn’t need to keep its default tax classification with the IRS.
The biggest advantage of being taxed as S-Corp is how the owner now pays self-employment taxes (social security and Medicare taxes).
S-Corporations are taxed at a rate of 15.3% of the net profit. The LLC owner incurs additional expenses including payroll processing, payroll tax returns, bookkeeping & accounting fees, and filing a 1120S tax return. These expenses will usually still be self-employment tax savings for LLCs as it’s reduced the net income dispersal.
Another advantage is when treated as an S-Corp, the owner also becomes an employee of the company and can now draw a reasonable salary from the company. That reasonable salary will only attract the 15.3% self-employment tax (which totals for both the employer and employee contribution). Whatever is the leftover profits (called distributions) are not subject to self-employment taxes.
Self-employment tax is a must for owner/s who work in or helps manage the business and not for those who are not active / merely invested money a do not provide services or make management decisions.
Call our helpline number 📞 1-855-481-5333 or speak to your accountant before changing to S-Corporation.
LLC Taxed as C-Corporation
For an LLC would like to be taxed as a C-Corporation, it must file Form 8832 and check the corporate tax treatment box on the form.
The advantage of being taxed as C-Corp is something called “income splitting”. When a business owner makes enough money, they can leave some in the business. They can take a reasonable salary, but not such a big salary that it completely eliminates the company’s profits. By “splitting the income”, an owner can now fall in a lower tax bracket. However, care should be taken not to leave the profit in the company for too long, or else it will attract Accumulated Earnings Tax.
After this, there is a separate income tax rates applicable to corporations and on the profits left in the company. The corporate income tax rates for the first $75,000 income is lower (15% as compared to individual tax rate of 27%) than the individual income tax which can help co-owners money in overall taxes.
Owners can write off” the legitimate business expenses, thereby reporting lower profits to the IRS. Deductible expenses include start-up costs, travel and entertainment expenses, vehicle, and advertising and promotion costs.
State Taxes and Fees
LLC owners pay taxes to the state on their Personal Returns; the LLC itself is not subjected to paying state tax. A few states, however, do charge the LLC a tax; for instance, California that levies a tax on LLCs that make over $250,000 per year.
In addition, some states also extract fees like a ” franchise tax,” an “annual registration fee” or a “renewal fee.”. These fees may range around $100; however, California exacts a high fee of $800. These states include California, Delaware, Illinois, Massachusetts, New Hampshire, Pennsylvania, and Wyoming. Please check your state’s website for the Revenue or Tax Department for more information.
Tax Filing Deadline For LLC Companies
- For C corporation returns on Form 1120: The regular date is April 15, 2020 (for December 31 year-end corporations)
- Pushing back of the April 15 federal tax deadline by 90 days – the date is extended to July 15, 2020
- If you can’t file by July 15, you can apply for an extension, but you still need to file the estimate of your tax due to avoid penalties. Knowingly jumping the deadline of failure to file tax on time attracts penalty so make sure to file tax or the extension on time.
Deadline Prior to Latest Extension Announcement
|Partnerships/LLCs – If your LLC is taxed like a partnership, then file Form 1065. If taxed like a corporation – file Form 1120.||Form 1065||16-Mar-20|
|S Corps to file business tax returns||Form 1120S||16-Mar-20|
|C Corps to file business tax returns||Form 1120||15-Apr-20|
|Sole proprietorship and single-member LLC tax returns on Schedule C||Form 1040||15-Apr-20|
Various business taxes have different deadlines. Some of them match with the April 15, 2020 deadline and the related COVID-19 extension mentioned above. However, other business taxes due dates are completely different and the first round of business tax deadlines has started from January 31, 2020. Always double-check with the IRS for more information.
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