To date, the Internal Revenue Service (IRS) estimates that there are approximately 25.5 million sole proprietorships in the United States. This is so, and here’s why: The formation of a sole proprietorship is the simplest legal structure under which to operate a company. For this reason, many entrepreneurs get their start by operating as a sole proprietor.

To shield themselves from potential legal action, many sole owners eventually choose to incorporate as limited liability companies (LLCs). Some small company owners find that having reduced personal responsibility provided by an LLC makes it easier to get a good night’s rest. In addition to limiting personal responsibility, forming an LLC can alter your tax situation. The various LLC tax filing requirements are discussed here.

Tax Status

Planning to file LLC income tax returns? The IRS has a habit of throwing curveballs. That’s because they don’t recognize LLCs as legal entities. A limited liability company (LLC) is formed and registered in a state, but the Internal Revenue Service (IRS) does not have a specific form for LLCs.

That won’t get you out of paying income taxes though. Whether the LLC is managed by a single person or a group, the IRS will determine its tax status automatically. The LLC’s taxation method is up to the business owner. You can file your taxes as a sole proprietor, a partnership, or a corporation (any number of owners).

If you don’t specify how you’d like your LLC to be taxed, it will be treated as a sole proprietorship or partnership. Fear not, though; we’ve got you covered with the income tax norms for all three varieties down below.

How to File Taxes as an LLC with One Owner

The Internal Revenue Service will consider your limited liability company to be a disregarded entity if you are the only member (unless you elect otherwise). Therefore, from a tax perspective, your firm will be treated similarly to that of a sole proprietorship (i.e., it will not be considered a separate entity from its owner). You, as the owner, will receive a share of any gains or losses.

Filing Schedule C with your individual income tax return is how single-member LLCs handle tax reporting and payment. Business earnings and outlays have to be detailed on Schedule C. You must report the gain or loss on Schedule D of Form 1040, Individual Income Tax Return.

Part I of Schedule E is where you’ll put this information instead of on Schedule C if your LLC owns rental property.
Similar to your individual tax return, they are also due on April 15.

HOW TO FILE TAXES AS A MULTIPLE-MEMBER LIMITED LIABILITY COMPANY

The LLC will be taxed as a partnership if it has more than one owner. The filing process for a multi-member LLC differs slightly from that of a single-member LLC. A Form 1065, Partnership Information Return, must be filed by the LLC. Each member of the LLC must also receive a Schedule K-1 detailing his or her allocation of the LLC’s revenue, deductions, and credits. Include the details from your K-1 in Section II of Schedule E of your Form 1040.

The 15th of March is the deadline for filing Form 1065 and Schedule K-1. By April 15th, you must have filled out and submitted your Form 1040 and Schedule E with the relevant details.

Read more: How to Maximize Tax Benefits for Retirement

Instructions for File Taxes as a Corporation

The taxation of an LLC can be structured in a variety of ways. You may choose to file as a C company or a S corporation instead of the defaults described above. Despite making this choice, your company will continue to function as an LLC. There are only minor adjustments to the process of filing and paying federal income taxes.

HOW TO FILE AS A C CORPORATION

Form 8832 must be filed with the IRS in order to make the election for an LLC to be taxed as a C corporation. If so, each year your company will need to submit a tax return using Form 1120.

HOW TO FILE AS A S CORPORATION

Choosing to operate as a S company. Filing IRS Form 2553 is mandatory. The S-Corporation tax return, Form 1120-S, must be filed yearly. However, being a pass-through organization, a S corporation is not responsible for its own taxation. Your personal tax return will include all income and deductions. That implies there will be additional paperwork to do. When filing Form 1040, each LLC owner will get a Schedule K-1, which they will use to complete Section II of Schedule E.

Estimated Taxes Due Every Three Months

In the United States, income tax is paid in installments throughout the year, as it is part of a “pay-as-you-go” system. There is a requirement for projected tax payments if you file your LLC taxes using the default tax status (default single-member or multi-member LLC). The four times a year that these taxes must be paid are April, June, September, and January.

Form 1040-ES, IRS Direct Pay, and the Electronic Federal Tax Payment System all allow for the timely submission of anticipated tax payments (EFTPS). Keep a record of all the money you send out; you’ll need it when it comes time to file your taxes.

Taxes on Income from Self-Employment

Whether your LLC has one member or several, if you generate company revenue, you must file and pay self-employment taxes to the IRS. The combined Medicare and Social Security portions of this tax amount to 15.3 percent. If you are self-employed, you must utilize Schedule SE to figure out your tax liability.

You can avoid paying self-employment taxes by choosing to be taxed as either a C or S company (Medicare taxes and Social Security taxes). Businesses will withhold payroll taxes from employee paychecks.

Read more: Tax Breaks for the Self-Employed

Taxes on Individual Income at the State Level

The LLC’s state income tax situation is not addressed in this paper. LLC earnings must also be reported on state tax returns. Verify the deadlines, paperwork, and costs imposed by your state. It’s important not to forget any filing costs that may be due each year in some jurisdictions.

As an illustration, the setup costs for a California limited liability company are high. Each year, you’ll need to pay at least $800 to the state to file your paperwork. The yearly filing cost can go as high as $11,790 for businesses with annual revenues of $5 million or more, or $250,000 for those with revenues of $250,000 or less.

Calendar of Important Tax Dates

LLC taxes can be paid by a number of different methods. This (plus the variety of forms) is why there are a number of distinct deadlines for filing taxes. So, to break it down:

• Schedule C and Schedule SE for a single-member LLC are due on April 15th.
• On March 15th, multi-member LLCs must file Form 1065 and Schedule K-1. The deadline for both the Schedule E and the Schedule SE is April 15th.
• The 1120 S and K-1 forms for S-corporations are due on March 15*.
• In the case of a C company, the 1120 tax form must be submitted by April 15*

*Due dates are calculated depending on the company’s calendar year (when the business year ends on December 31).

It is possible to request more time to complete your LLC’s tax return. Avoiding filing by the due date is a certain way to incur late fees. Be aware that while this does offer you more time to submit your taxes, you are still required to pay them by the original deadline.

Read more: Understanding the Tax Implications of Home Ownership

Is a Tax Refund Possible for a Limited Liability Company?

If you’ve done everything by the book, you might be curious if the IRS will provide a refund to your LLC. All business structures not classified as a C corporation are pass-through entities, meaning that taxation and refunds are handled at the individual level. This refund policy applies only to C companies. For all other forms of LLC tax returns, the money goes back to the business owner.

Your LLC will not get a refund check for any overpayments of taxes; rather, you will receive a personal check in the amount of the overpayments. Now you will ask, “Can I handle the taxation of my limited liability company on a separate tax return?” or “Is it possible to keep the LLC’s financial records distinct from your own personal tax return, given that an LLC is a commercial entity?”

Both yes and no can be said. That is a question that can only be answered after looking at the specific tax structure of your LLC. Pass-through entities include sole proprietorships, partnerships, and S corporations. This implies that your gains or losses will be directly shown on your tax return.

In contrast, if your business is treated as a partnership or a S corporation, you’ll need to file two different tax returns and include your LLC’s earnings and losses on your individual Form 1040. If you file your taxes as a C corporation, any company revenue or losses will not affect how you personally pay taxes, therefore you will need to file a separate tax return.

Definition of EIN & its significance in the business world

Employer identification numbers, or EINs, are assigned to corporations in the United States in the same way that social security numbers are assigned to individuals. The IRS assigns each business an Employer Identification Number (EIN) that is a nine-digit code used mostly for paying and reporting payroll taxes. Federal Tax Identification Numbers are another name for them. They are granted to a single company and are not reused in any way, much like SSNs.

Eligibility

Having a U.S. physical location and a personal taxpayer identification number (SSN or similar) are prerequisites for applying for an Employer Identification Number (EIN).

Companies big and small, nonprofits and government agencies, partnerships and sole proprietorships, all of these and more can apply for and get an Employer Identification Number (EIN).

Regarding workforce size, there are no stipulations or restrictions. Such a request can be made by any organization, from a single company with only the owner as employee to a global corporation or a charity.

When do you require EIN?

In order to make electronic federal tax payments, submit a yearly tax return, and issue W-2s and other payroll and tax records to vendors, businesses require an EIN. If your company pays taxes (and who doesn’t? ), you need an EIN, which has little to do with employment but everything to do with taxation.

Steps to Apply

In the past, businesses seeking an EIN had to fill out IRS Form SS-4. The IRS now recommends that companies register for an EIN online.
You can consult with FIVE TAX professionals for more guidance.

Filing Employment Taxes: The Three Easy Steps

Employing people means taking on a whole new set of duties when it comes to paying taxes. Employment taxes include but are not limited to federal income taxes, social security and medicare taxes, and federal unemployment (FUTA) taxes, all of which must be reported and deposited. The following is a schedule for paying payroll taxes.

Wage and Tax Payments

Employer and employee contributions to Social Security and Medicare must be deposited, as well as any federal income tax withheld, according to the IRS website. Reviewing IRS Publication 15 or 51 will help you figure out which of the IRS’s monthly or semi-weekly deposit schedules is appropriate for your company.

In the event that your FUTA tax liability for a given quarter is more than $500, you must submit a deposit by the last day of the month following the quarter’s close. The Federal Unemployment Tax Act (FUTA) tax is not included in employees’ paychecks but is instead paid in full by their employer.

The Electronic Federal Tax Payment System is the only accepted method of making federal tax contributions (EFTPS). Applying is as easy as calling 1-800-555-4477 or visiting the website.

Submission of Payroll Taxes

Filing IRS Form W2 at the end of the year is standard procedure for reporting employee pay, gratuities, and other remuneration. In addition to disclosing the taxes you’ve already paid, you’ll need to do this. Forms 940, 941 (for most firms), and 944 must be filed quarterly to report income, Social Security, and Medicare taxes on paper or by e-file. Form 940 is used each year to submit FUTA taxes owed.

Keeping Accurate Tax Documents

For at least four years after an employee has left your employ, you should retain all documents pertaining to employment taxes, including the dates and dollar amounts of all salary and pension payments.

Guidelines for Preparing Your Own Tax Return

If any of the following describe your work situation, the IRS will treat you as self-employed:

• Since you are an independent contractor or sole owner, you run your own business.
• You participate in a commercial venture as a partner or owner of a limited liability corporation (limited partners are usually exempt; LLC members may be treated as employees if the business makes an election).
• In any case, you’re running a business on your own, whether it’s full-time or part-time.

Self-employment taxes, which include Social Security and Medicare taxes, must be paid by those who are self-employed and make $400 or more each year. Since your company isn’t withholding these taxes from your paycheck, you’ll need to figure up an estimate and make quarterly payments to cover them. To do this, submit Form 1040-ES. File Schedule SE of Form 1040 to report your Social Security and Medicare taxes.

Joint efforts of a husband and couple

One possible tax benefit for a firm that is owned and operated solely by a husband and wife is that they may file jointly. Under the provisions of the Small Firm and Work Opportunity Act of 2007, a husband-and-wife business can elect out of federal tax treatment as a partnership. Instead, each partner is classified as a single proprietor and their share of the business’s revenue, profits, losses, credits, and tax deductions are calculated individually.

This might allow both partners to receive credit for their own Social Security contributions. To find out if you qualify, you should go to a tax professional since, like all things related to taxes, it becomes difficult.

Read more: Understanding the Tax Implications of Home Ownership

Comprehending State Taxes for Enterprises

Paying taxes is not optional for businesses, and they are not limited to just the federal level. Local and state governments are also interested in a cut of your earnings.

Taxes on Individual Income at the State Level

It is important to note that your firm’s tax obligations will vary depending on the form your company takes legally, as business or corporate income taxes are in place in nearly all states in the United States. Sole proprietors, in contrast to LLC owners, must utilize a single tax form to account for both their personal and corporate finances.

Payroll Taxes by State

Certain state employment taxes are due in addition to federal employment taxes. Regardless of where you live, you must pay taxes to support your state’s unemployment and workers’ compensation programs.

Outsourcing the LLC Tax Filing Process,

Filing taxes as an LLC (Limited Liability Company) for the first time might be difficult, so it’s always a good idea to review the tax rules again. If you know the deadlines and have a firm grasp on the responsibilities that pertain to your unique tax situation, you may submit your taxes with complete assurance. Talk to a tax expert like Five.Tax, about your business’s income, taxable income, and income tax payments as an LLC if you have any questions.

Conclusion

We hope that by reading this article, you will have a better understanding of your legal responsibilities with regard to filing your federal income tax return as an LLC.