LLC taxes can seem rather intimidating at first, particularly since you can actually choose how you want to be taxed. In most states, there's actually no such thing as pure LLC taxes. Instead, you either file your taxes in the default form for your LLC or you petition the IRS to be taxed as a different type of entity. Here are some general guidelines for handling your taxes.
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Figure Out the Taxes You're Paying
When you file your LLC Operating Agreement or articles of incorporation to start up your LLC, you will have a default setting for your taxes. If you are starting an LLC on your own, then your LLC is taxed as a sole proprietorship. If you are starting an LLC with at least one other person, you'll be taxed as a partnership. If you petition the IRS to change the status of your LLC's taxation, you'll have to wait until your request is approved. You can't decide unilaterally to file your taxes in a different form. If you do, the IRS will penalize you. The penalties vary based on the difference between the taxes you actually paid and the taxes you should have paid.
Remember Quarterly Estimated Taxes and Self-Employment Taxes Apply
When you're preparing for your LLC taxes, make sure that you account for quarterly estimated taxes and self-employment taxes. Both of these apply in most business forms. If your LLC files taxes as a corporation, it generally won't have to pay self-employment taxes.
The quarterly estimated taxes are what you anticipate bringing in as taxable income for your LLC. Ideally, the payments should be even, meaning that if you're going to owe a total of $4000 in taxable income on your LLC, the IRS wants you to pay $1000 for each of the business quarters.
Your self-employment tax as an LLC is calculated at the same rate as sole proprietorship and partnership self-employment taxes. Remember that even if you have employees and have to calculate payroll taxes, you still have to pay self-employment taxes for yourself.
Find Out Whether You Owe Income Taxes in More Than One State
When paying your taxes, remember that self-employment taxes don't include federal and state income tax. State income tax is governed by the individual states. The one thing you have to remember is that you could wind up being liable for two states worth of income taxes. This happens when you incorporate your LLC in a state other than the one in which your LLC is actually located. As an individual, you will file your taxes in the state where you are a resident. But since your LLC is incorporated in another state, you may have to pay taxes there as well, in some cases, although not all states require this. You'll also never get taxed doubly on federal income tax.
Get started Start Your LLC Answer some questions. We’ll take care of the rest.
Get started Start Your LLC Answer some questions. We’ll take care of the rest.
