How to File LLC Taxes For Small Business LLC

If your business is organized as an LLC, your tax professional may recommend that your business entity be taxed as a sole proprietorship, a partnership, or a corporation, and you may be responsible for self-employment taxes in addition to federal taxes and state income tax.

Owners of a limited liability company (LLC) can choose and change how they file business taxes with the guidance of a tax professional. This flexibility is one of the qualities that make LLCs appealing to small business owners. But if you're starting out, the annual LLC tax filing process can seem confusing.

There are several types of LLCs, and each business structure has its own tax rules. LLCs can file like sole proprietorships, partnerships, or corporations, and it's essential to understand their differences and how they affect how your business pays federal taxes and state income taxes. This article highlights different tax classifications, their requirements, and best practices to find the best tax strategy for your business.

LLC Tax Overview

An LLC's tax classification depends on its members, i.e., the business owners. The IRS assigns a default tax structure based on the number of members. From there, members can elect to change their tax classification. The IRS assigns two default tax designations:

• Sole proprietorship if an LLC only has one owner.

• General partnership if an LLC has more than one member.

How to File LLC Taxes by LLC Type

LLCs file taxes under their default designation. But if you'd prefer to have your LLC taxed like a corporation, you can change its tax status by filing a form with the IRS. It can also re-form as a partnership or proprietorship if the LLC 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 starting out, you'll probably prefer to file as a sole proprietorship or partnership. But as your business grows, you should consult a tax adviser or accountant to see if your LLC might benefit from taxation as a corporation.

Single-Member LLCs

• Forms needed: Schedule C of Form 1040

• Filing due date: April 15

Single-member LLC business taxes work like those of a sole proprietorship. LLCs report their business income and expenses on Schedule C of the member's personal individual income tax return. The member then lists the net profit or loss on the income section of Form 1040.

The IRS disregards LLC status for tax purposes, treating it like a sole proprietorship. This is why it's called a "disregarded business entity." However, single-member LLCs still retain limited liability protection.

Multiple-Member LLCs

• Forms needed: Schedule K-1 of Form 1065, Schedule E of Form 1040

• Filing due date: March 15 (Schedule K-1), April 15 (Form 1040)

If your LLC has more than one member and files as a partnership, income flows through to the members. Each member reports this income on their individual tax return. LLCs must:

• Issue a Schedule K-1 to each member showing their share of profits.

• File Form 1065, an informational return reporting partnership income and expenses.

• Members report their share of profits or losses on Schedule E.

Even if members don’t withdraw profits, they’re still taxed on their allocated share.

LLCs Taxed as C Corporations

• Forms needed: Form 1120, Schedule B of Form 1040

• Filing due date: April 15

An LLC can elect C corporation taxation by filing Form 8832. This can be beneficial if:

• You plan to reinvest most of the profits.

• You're earning far more than a reasonable salary and want to reduce self-employment tax.

LLCs taxed as C corps must pay double taxation: once at the corporate level (Form 1120), and again when dividends are reported on personal returns (Form 1040).

LLCs Taxed as S Corporations

• Forms needed: Form 1120-S, Schedule K-1 of Form 1120-S

• Filing due date: March 15

An LLC can elect S corp taxation by filing Form 2553. Like a partnership, it:

• Files an informational return (Form 1120-S).

• Issues Schedule K-1s to members, who report earnings on Schedule E.

S corps can provide self-employment tax savings under the right circumstances, but require careful compliance with IRS rules.

Other Taxes LLCs May Owe

In addition to federal income tax, LLCs may be subject to:

• Self-employment tax

• State income taxes (corporate or personal)

• Payroll taxes

• Property taxes

• Social Security taxes

• Excise taxes

• Sales taxes

Self-Employment Taxes

LLC members taxed as sole proprietors or partners must pay the full amount of Social Security and Medicare taxes. This is done via Schedule SE. You can deduct half of the self-employment tax on your tax return.

Estimated Quarterly Taxes

Self-employed individuals must make estimated payments each quarter using Form 1040-ES to avoid penalties.

State Income Taxes

Each state sets its own tax rules, forms, and deadlines. You may owe:

• Personal or corporate income taxes

• State franchise taxes

• Annual renewal fees

These vary by state, so consult a local tax expert for state-specific guidance.

How to Change Your LLC’s Tax Classification

LLCs can change their tax classification by either adjusting their ownership or electing a new status with the IRS. However, they generally cannot change classification again for 60 months.

1. Pick the Structure That Fits

LLCs can choose to file as a:

• Sole proprietorship

• General partnership

• C corp

• S corp

2. Convert Your Business Structure

• To sole proprietorship: be the only member or buy out others.

• To partnership: add a new member.

• To C corp: file Form 8832 and prepare for corporate compliance.

• To S corp: meet eligibility requirements and file Form 2553.

3. File the Appropriate Form

• Form 8832: for C corp, partnership, or disregarded entity.

• Form 2553: for S corp.

Best Practices for Filing LLC Taxes

• Get organized early: Know the right forms and deadlines.

• Deduct startup costs: Take advantage of IRS startup deductions.

• Track income and expenses accurately: Good records help avoid audits.

• Consult a tax professional: The best tax strategies are tailored.

Will My LLC Receive Its Own Tax Return?

Yes, if you have:

• A multi-member LLC (Form 1065)

• An LLC taxed as an S corp (Form 1120-S)

• An LLC taxed as a C corp (Form 1120)

Unsure of What Structure is Right for You?

Whether you’re unsure how to classify your LLC or want help maximizing your tax benefits, the experts at Legit X Filings can help. From filing your LLC and preparing your EIN to submitting BOI reports and handling annual renewals, Legit X Filings is your trusted partner for LLC formation and tax compliance.

Let Legit X Filings help you file your taxes the right way—backed by experience, expertise, and integrity.