How an LLC gets taxed

How an LLC gets taxed

On Behalf of | Dec 16, 2021 | Uncategorized

A New Jersey LLC won’t pay typical business income tax because members of the LLC pay taxes on their share of profits. Governing bodies have the authority to levy other LLC taxes.

Types of LLC taxes

As an LLC member, you must pay income tax on any income earned as well as any self-employment taxes. Federal, state and local governments can levy taxes. Depending on the product or service, or if you have employees, there might be payroll and sales taxes. An LLC can also opt for taxing as a specific entity.

How the LLC pays taxes

Owners vested in the LLC might be liable for state, local and federal taxes. How you pay LLC taxes is dependent on whether you’re the owner of a single-member LLC or there are multiple owners.

Single-member LLCs

For business law purposes, tax collectors treat single-member LLCs as disregarded entities. That means the LLC has no obligation to file a separate tax return. They go straight on the tax return of the member.

Multi-member LLCs

Like the single-member LLC, multi-member LLCs are pass-through entities. Only individual members pay taxes in proportion to ownership stakes. The tax rate is per each member’s bracket.

Multi-members file specific tax forms with the IRS, such as Form 1065. The LLC is also responsible for a completed Schedule K-1 every March. It summarizes each owner’s share of LLC credits, loss, income and deductions.

Choosing a tax status for the LLC

An LLC can classify itself as either an S-corporation or C-corporation with the vote and consents reflected in the operating agreement. C-corporation filing requires Form 8832. The S-corporation files Form 2553 as a pass-through entity with unique salary and distributions.

LLC taxes on payroll

Employees of the LLC collect and pay payroll taxes. Employers need to withhold the employee share as well as income taxes. You’ll use Form 940 and 941; you file the former annually and the latter quarterly.

These are only some of the obligations for LLC taxes. It’s crucial to stay organized, making sure the correct forms go out and taxes get paid promptly. Remember that the IRS is amicable when it comes to extensions without penalties.