How to File Taxes for an LLC: A Step-by-Step Breakdown

A Limited Liability Company (LLC) is a business structure created by state law that provides liability protection to its owners, known as members. The Internal Revenue Service (IRS) does not have a specific tax category for LLCs, so its tax treatment depends on the number of members and any elections it makes. This flexibility allows an LLC to be taxed as a sole proprietorship, partnership, S corporation, or C corporation.

The core concept for most LLCs is “pass-through” taxation, where the business itself does not pay taxes. Instead, profits and losses are “passed through” to the members, who report them on their personal tax returns. This approach avoids the double taxation associated with C corporations.

Understanding LLC Tax Classifications

A single-member LLC is by default a “disregarded entity,” meaning the IRS treats it as a sole proprietorship for federal income tax purposes. All business income and expenses are reported on the owner’s personal tax return. The business does not file a separate federal income tax return.

For an LLC with two or more members, the default tax classification is a partnership. The LLC files a separate informational return to report its income and deductions. Each member receives a document detailing their share of the profits or losses to report on their personal tax returns.

An LLC can elect to be taxed as an S corporation by filing Form 2553, Election by a Small Business Corporation. This can offer savings on self-employment taxes. Owners who work in the business must be paid a “reasonable salary” subject to payroll taxes, while remaining profits can be distributed as dividends, which are not subject to self-employment tax.

An LLC can also elect to be taxed as a C corporation by filing Form 8832, Entity Classification Election. A C corporation pays tax on its profits at the corporate level. If profits are distributed to owners as dividends, the owners also pay tax on that income, resulting in “double taxation.”

Required Information and Documentation

Gathering all necessary documents beforehand streamlines the tax filing process and ensures accuracy. These records substantiate the figures you report to the IRS. Key documentation includes:

• An Employer Identification Number (EIN), which is a federal tax ID required for any multi-member LLC, any LLC with employees, or any LLC electing to be taxed as a corporation. A single-member LLC may also need an EIN if it files for excise or employment taxes.
• Financial statements and records, including a Profit and Loss (P&L) statement summarizing revenues and expenses, and a Balance Sheet showing assets, liabilities, and equity. These are created from complete records of all business transactions, such as bank statements, invoices, and receipts.
• Asset purchase information for significant assets bought during the year, such as vehicles or equipment. You will need records of the purchase date and cost to calculate depreciation.
• Payroll records for LLCs with employees, which include Forms W-2 issued to each employee, copies of filed payroll tax returns like Form 941, and records of state payroll tax filings.

The Federal Tax Filing Process

For Disregarded Entities (Single-Member LLCs)

A single-member LLC reports its business activities on Schedule C, Profit or Loss from Business, which is attached to the owner’s personal Form 1040. The owner calculates the LLC’s net profit or loss on Schedule C, and this figure flows directly onto their Form 1040 to be combined with other personal income.

For Partnerships (Multi-Member LLCs)

An LLC taxed as a partnership files Form 1065, U.S. Return of Partnership Income. This is an informational return that reports the LLC’s finances to the IRS. The LLC then prepares a Schedule K-1 for each member, which details their individual share of the partnership’s profits, losses, and deductions. Members use their Schedule K-1 to report this information on their personal Form 1040.

For S Corporations

An LLC taxed as an S corporation files Form 1120-S, U.S. Income Tax Return for an S Corporation. This is also an informational return. Like a partnership, the S corporation provides a Schedule K-1 to each shareholder reporting their share of the business’s income or loss. Shareholders use this information to complete their personal tax returns.

For C Corporations

An LLC that elects C corporation status files Form 1120, U.S. Corporation Income Tax Return. The C corporation calculates its taxable income and pays corporate income tax directly. If the corporation distributes profits to owners, these are dividends. The corporation issues Form 1099-DIV to shareholders, who must report this dividend income on their personal Form 1040.

Paying Self-Employment and Estimated Taxes

The U.S. tax system is “pay-as-you-go,” requiring you to pay taxes on income as you earn it. For business owners, this involves paying self-employment taxes and making quarterly estimated tax payments.

Self-Employment Tax

Net earnings for members of LLCs taxed as disregarded entities or partnerships are subject to self-employment tax, which covers Social Security and Medicare. The 15.3% rate consists of 12.4% for Social Security up to an annual limit ($176,100 for 2025) and 2.9% for Medicare on all net earnings. This tax is calculated on Schedule SE, filed with the owner’s Form 1040. You can deduct one-half of your self-employment tax.

Estimated Taxes

If an LLC owner expects to owe $1,000 or more in tax for the year, they must make estimated tax payments. These payments cover both income and self-employment taxes and are paid in four quarterly installments. The due dates are April 15, June 15, September 15, and January 15 of the following year. Payments are calculated using Form 1040-ES, Estimated Tax for Individuals.

State and Local Tax Considerations

Businesses must also comply with tax requirements at the state and local levels. These laws vary significantly, so owners should research the specific rules for their business’s location.

State Income Tax

Most states have an income tax, and the filing method for an LLC often mirrors its federal classification. For pass-through entities, profits are passed to the members, who pay tax on their personal state returns. LLCs taxed as C corporations generally file a separate state corporate income tax return.

Franchise Tax or Annual Report Fees

Many states impose a franchise tax or annual report fee on LLCs for the privilege of doing business there. This can be a flat annual fee or calculated based on the business’s net worth. This tax is often due regardless of whether the LLC was profitable.

Sales Tax

An LLC selling taxable goods or services must collect sales tax from customers and remit it to state and local authorities. This requires registering for a sales tax permit, charging the correct rate, and filing regular sales tax returns.

Payroll Taxes

An LLC with employees has state payroll tax obligations, which include payments for state unemployment insurance. Some states may also require withholding for other programs like disability insurance. The LLC must register with the state’s workforce agency and make regular payments.