When Do Businesses Have To File Taxes – This article is for informational purposes. This content does not constitute legal advice, but is the author’s own statement and has not been evaluated for accuracy or changes in the law.
Owners of a limited liability company (LLC) can choose and change the way they file taxes. This flexibility is one of the qualities that make LLCs attractive to small business owners. However, if you’re just starting out, the LLC tax filing process can seem confusing.
When Do Businesses Have To File Taxes
LLCs can file like sole proprietorships, partnerships, or corporations, and it’s crucial to understand the differences between them and how they affect how your business pays taxes. We will highlight the different tax classifications, their requirements, and best practices to find the best tax strategy for your business.
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An LLC’s tax classification depends on its members and business owners. The IRS assigns a default tax structure based on the number of members. From here members can choose to change their tax classification. The IRS assigns two default tax definitions:
Any LLC files taxes under their assumed name. However, if you prefer your LLC to be taxed as a corporation, you can change its tax status by filing a form with the IRS. The LLC can also re-form as a partnership or proprietorship if it adds or loses members.
Knowing how to file business taxes for an LLC is an important step in keeping your finances on track. If you’re just starting out, you’ll probably want to file as a sole proprietorship or partnership. But as your business grows, you should consult a tax advisor or accountant to see if your LLC would benefit from taxation as a corporation.
Single-member LLC taxes work like those of a sole proprietorship. LLCs report their business income and expenses on Schedule C of the member’s personal income tax return. The member then lists the net profit or loss in the income section of his Form 1040, U.S. Individual Income Tax Return.
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Because the IRS ignores LLC status for tax purposes, the company is filed as a sole proprietorship. Accountants and tax professionals treat sole proprietorship LLC taxes as if they come from an “ignored entity.” Note that this is for tax purposes only; these LLCs still retain all limited liability protection.
If your LLC has more than one member and is filed as a partnership, the income from the LLC will be transferred to the members themselves. Members will report this income on their personal tax returns. Payment of multi-member LLC taxes includes:
LLC members then report their share of profits (or losses) on Schedule E of their personal tax returns. Members must report and pay taxes on all of their dividends, even if they leave some of those profits at work rather than taking them home.
Required forms: Schedule K-1 Form 1065, Schedule E Form 1040 Filing deadline: Form 1065 of Schedule K-1 is due March 15. The general application deadline is April 15. LLCs are taxed as C corporations
How Llcs Pay Taxes
An LLC can file with the IRS as a C corporation by filing Entity Classification Election Form 8832. Corporate taxation is complex, and it’s a good idea to consult an accountant before paying taxes as a company. Here are some reasons why an LLC may choose corporate income tax:
An LLC taxed as a C corporation files a corporate tax return each year. They will file corporate taxes on Form 1120. Shareholders will also report the salaries and dividends they receive on their personal tax returns. Owners report their dividends on Form 1040 of their tax return.
It is important to note that C corporations are subject to tax at both the corporate and shareholder level (double taxation should be taken into account for personal returns).
An LLC may also host another election to file as an S corporation. An LLC taxed as an S corporation follows a procedure similar to a partnership:
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Like all business structures, LLCs owe more in federal income taxes. Additionally, LLCs may have to pay multiple taxes to their state and federal governments depending on their location and tax classification. The main ones include:
If an LLC files taxes as a sole proprietorship or partnership, the IRS considers its members to be self-employed for federal tax purposes. When you work for an employer, your employer pays half of your Social Security and Medicare taxes and you pay the other half. But when you are self-employed, you have to pay the full amount yourself.
You can deduct half of this tax from your income on your annual tax return, which somewhat offsets the impact of the self-employment tax. For Self-Employment Tax, you must file SE Form 1040 with your tax return.
Self-employed individuals are required to make estimated payments for their self-employment and personal income taxes every three months. Failure to file quarterly taxes may result in penalties and interest.
When Are Taxes Due For Businesses?
States can set their own tax rates on personal and corporate income. Making accurate payments on state taxes is just as important as federal filings. LLCs and their members may be required to file income and franchise taxes in each state in which they do business. State tax forms and due dates vary from state to state.
These state income taxes are in addition to your LLC’s annual renewal fee. Similar to income taxes, each state sets a unique fee. Deadlines also vary by state. Consult your registered agent or business advisor for information on renewal fees and deadlines.
It is important to note that in addition to your LLC’s annual renewal fee, state income taxes may also apply. These state income taxes are separate from the annual renewal fee and are specific to each state. State income tax deadlines may vary by state. We recommend consulting your registered agent or a trusted tax advisor for more information about your state’s specific deadlines.
LLCs can change their tax classification by adjusting their ownership structure or choosing to file as a corporation. LLCs can change their tax status at any time. However, they cannot elect to change their status again until 60 months have passed from the first effective date of the election.
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Many LLCs change their classification to become a corporation. However, in rare cases they may transition from partnership to ownership or vice versa. Carefully consider the strengths and weaknesses of each structure before deciding.
Once members decide to make changes to the structure of the LLC, they must file an application with the IRS. If an LLC does not submit the appropriate form on time, it may have to pay taxes based on its default classification. The form you submit to change your classification depends on your new structure:
Each LLC tax classification is required to file unique forms with different tax due dates. Review IRS guidelines in advance to avoid incorrect fill-outs or missed deadlines during tax season. This proactive approach will also highlight deductions and tax loopholes that could benefit you.
Yes, you will need to file separate tax returns for your LLC and personal taxes. If you operate your LLC as a proprietorship, partnership, or S corporation, the IRS treats your LLC as a disregarded entity. This means your LLC’s income is reported on your personal tax return. However, if your LLC is a partnership or S corporation, your share of the profits will also be subject to separate income tax returns as part of the partnership or S corporation return. It is important to consult a tax professional to ensure that both your LLC and personal tax returns are filed correctly.
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Only LLCs structured as C corporations receive a separate tax return. Otherwise, the LLC’s profits appear on the personal tax return.
The IRS offers special discounts to LLCs during their first few years of operation. By taking advantage of these opportunities, you increase your chances of seeing your business grow.
Each LLC tax classification is eligible for unique deductions. Work with an attorney or tax professional to find all deductions that apply to your business structure. Unlike startup deductions, these savings will apply as long as your LLC maintains its structure.
No matter your business structure, there is no way to avoid taxes. However, LLCs allow owners to choose the best tax strategy for their firm. And with so many options available, the right choice can significantly improve your financial situation.
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Considering an LLC for your business? The application process is not complicated, but to apply for an LLC you will need to do some homework first. The Corporate Income Tax (CIT) filing deadline is approaching; all companies will be required to declare their Corporate Income
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