Limited liability company (LLC) taxes can become complicated once your business starts generating revenue. How an LLC is taxed affects how profits are reported, how much owners owe, and which forms are required. With smart elections, you could potentially save thousands of dollars in annual taxes with an LLC, but you have to understand how LLC tax structure works.

Below, we’ll explain LLC taxes in the US, including default tax treatment, corporate tax elections, self-employment taxes, estimated payments, and state and local tax obligations.

What’s in this article?

• What are LLC taxes?
  
• How are LLCs taxed by default?
  
• Do LLC owners have to pay self-employment tax?
  
• What tax forms does an LLC have to file?
  
• Do LLC owners need to pay estimated taxes?
  
• What state and local taxes apply to LLCs?
  
• How Stripe Atlas can help
  

What are LLC taxes?

LLC taxes are the taxes limited liability companies pay on their business income. An LLC is a business structure created under state law that separates the business’s obligations from the owners’ personal assets. It offers liability protection like a corporation while allowing flexible ownership, management, and tax treatment.

LLCs are “pass-through” entities by default, which means profits flow to the owners’ personal tax returns. But LLCs have the option to elect corporate taxation if it makes sense for their business model.

How are LLCs taxed by default?

By default, the Internal Revenue Service (IRS) treats LLCs as pass-through businesses. This classification applies automatically unless the LLC files an election to change it. Owners do not need to file anything with the IRS to receive default pass-through treatment; the classification applies as soon as the LLC is formed, based solely on the number of owners.

Single-member LLCs are treated as disregarded entities by default. The business does not pay income tax separately from its owner unless a tax treatment election is made. All income and expenses have to be reported on the owner’s personal tax return, and the profit is taxed at the owner’s individual income tax rate.

Multi-member LLCs are taxed as a partnership by default. The LLC files an informational return that reports total income and expenses, then issues each owner a tax form for their share of the profit, which they report on their personal returns.

In both cases, the LLC itself generally does not pay federal income tax. Profits flow through to the owners and are taxed once at the individual level rather than being taxed at both the business and owner level.

​​An LLC can choose to be taxed as a corporation by filing an election with the IRS. This changes how income is taxed and reported, but does not change the LLC’s legal status under state law. If the LLC qualifies, it can also elect S corporation tax treatment, which affects how owners are paid and how certain taxes apply. This option introduces additional rules and ongoing compliance requirements.

Many states follow the federal default classification for income tax purposes but still impose separate annual fees, minimum taxes, or franchise taxes on LLCs regardless of profit.

Do LLC owners have to pay self-employment tax?

In many cases, LLC owners have to pay self-employment tax. If the LLC is taxed as a pass-through business, the IRS generally treats the owners as self-employed rather than as employees. Owners calculate self-employment tax on their personal returns based on the LLC’s net profit after deductions and pay this in addition to regular income tax.

If an LLC is taxed as a C corporation or an S corporation, owners pay payroll taxes on wages they receive rather than self-employment taxes on all profits.

What tax forms does an LLC have to file?

The tax forms that an LLC files depend on how it’s taxed, not on the LLC label itself. Once you know the classification, the filing requirements are predictable.

Here are the required tax forms based on the LLC’s ownership and tax structure:

• Single-member LLCs: Without any other elections, a single-member LLC’s owner reports the business’s income and expenses on their personal return, typically on Schedule C, along with any required self-employment tax forms.

• Multi-member LLCs: These require an information return, Form 1065, which reports the partnership’s income, losses, and more, with a Schedule K form to show partners’ shares of the profit and loss.

• S corporation-taxed LLCs: An LLC with S corp status files a corporate pass-through return, Form 1120‑S. The business reports income at the entity level, issues owner tax forms for pass-through income, and files payroll forms for any wages paid.

• C corporation-taxed LLCs: An LLC taxed as a C corporation files Form 1120, a corporate income tax return, and pays tax at the entity level. Owners report dividends separately if profits are distributed.

LLCs with employees must also file payroll tax forms and issue wage statements, and LLCs that pay contractors might need to issue information returns reporting those payments. Many states require additional LLC returns, annual reports, or franchise tax filings, which can apply even when the LLC has little or no income.

Do LLC owners need to pay estimated taxes?

Many LLC owners in the US have to pay estimated taxes. When taxes aren’t withheld from LLC profits, the IRS expects owners to pay tax throughout the year instead of waiting until they file their return. Estimated taxes include federal income tax and, where applicable, self-employment tax. They do not replace payroll tax deposits for wages.

Keep the following in mind:

• Why estimated taxes apply: LLC income often flows directly to owners without any withholding. Estimated tax payments are how owners prepay income tax and self-employment tax on that income.

• Who needs to pay: Owners generally must make estimated payments if they expect to owe at least $1,000 when their return is filed. This applies to single-member and multi-member LLCs that haven’t made other elections, as well as to LLCs taxed as S corporations.

• Payment timing: Estimated taxes are typically paid four times a year, following IRS quarterly deadlines. Missing or underpaying these payments can trigger penalties, even if the full tax is paid later.

• How amounts are calculated: Owners estimate their annual tax based on projected income and divide that amount across quarterly payments. Many rely on safe harbor rules that base payments on the prior year’s tax to reduce penalty risk.

Many states with income taxes have similar estimated payment requirements. Owners might need to make separate state payments on the same quarterly schedule.

What state and local taxes apply to LLCs?

State and local governments often impose their own taxes, fees, and filing requirements on LLCs. These can vary widely based on where the business operates.

Your LLC may be subject to:

• State income taxes: Many states tax LLC income at the owner level for pass-through LLCs, using the same classification as federal tax law. If an LLC is taxed as a corporation, the business might owe state corporate income tax instead.

• Annual fees and franchise taxes: Many states charge LLCs a flat annual fee or franchise tax for doing business in the state. These charges often apply regardless of profitability and must be paid to keep the LLC in good standing.

• Gross receipts-based taxes: Some states assess taxes or fees based on total revenue rather than profit. These can apply even when the LLC is operating at a loss.

• Sales and use taxes: LLCs that sell taxable goods or services are required to collect and remit sales tax in states where they have tax nexus. This obligation depends on where customers are located and how much business is conducted there.

• Employer-related state taxes: LLCs with employees must handle state payroll obligations, including income tax withholding and unemployment insurance taxes. These are separate from federal payroll taxes.

• Local business taxes and licenses: Cities and counties might impose local business income taxes, gross receipts taxes, or annual license fees.

LLCs operating in more than one state can face tax obligations in each state where they are considered to be doing business. This can trigger additional filings, fees, and reporting requirements.

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