How to File Taxes for an LLC in Illinois
Learn how to navigate LLC tax filing in Illinois, from classification choices to reporting requirements, to ensure compliance and avoid common pitfalls.
Filing taxes for an LLC in Illinois depends on its tax classification. Failing to comply with state and federal requirements can lead to penalties, making it essential to understand what needs to be filed and when.
LLC owners must report income correctly, fulfill sales and employment tax obligations if applicable, and be aware of options for extensions or amendments if corrections are needed.
Tax Classification Options
An LLC in Illinois has no default federal tax classification. The IRS allows it to choose how it will be taxed. By default, a single-member LLC is a disregarded entity, meaning its income and expenses are reported on the owner’s personal tax return using Schedule C of Form 1040. This does not separate business and personal income.
A multi-member LLC is classified as a partnership by default, requiring the business to file Form 1065 and issue Schedule K-1s to each member. Members then report their share of profits and losses on their individual tax returns, which may trigger self-employment tax obligations.
LLCs can elect S corporation taxation by filing Form 2553. This allows owners to take a salary, subject to payroll taxes, while the remaining profits are distributed as dividends, which are not subject to self-employment tax. However, S corporations must follow IRS rules, including a 100-shareholder limit, with all shareholders required to be U.S. citizens or residents.
Alternatively, an LLC can choose C corporation taxation by filing Form 8832. This subjects the business to a corporate income tax rate of 21% as of 2024. Profits distributed as dividends are taxed again at the individual level, creating double taxation. However, C corporation status can be beneficial for businesses that reinvest earnings rather than distribute them.
Illinois Income Reporting
LLCs in Illinois must comply with state income tax requirements based on their tax classification. Single-member LLCs that are disregarded entities report income on the owner’s Illinois individual tax return (Form IL-1040). Multi-member LLCs classified as partnerships file Form IL-1065 and issue Illinois Schedule K-1-Ps to members.
LLCs electing corporate taxation file Form IL-1120 and pay Illinois’ corporate income tax of 4.95% as of 2024. Corporations are also subject to the Personal Property Replacement Tax (PPRT): 2.5% for corporations and 1.5% for partnerships. This tax, introduced after the elimination of local personal property taxes in 1979, must be considered in tax planning.
LLCs with nonresident members must comply with Illinois’ pass-through withholding rules. If a partnership has nonresident owners, it must withhold Illinois income tax on their distributive share at a rate of 4.95%, reported on Form IL-1000. This ensures the state collects tax from members who do not file Illinois returns. Failure to withhold can result in penalties and interest.
Sales and Withholding Obligations
LLCs selling goods or taxable services in Illinois must register with the Illinois Department of Revenue (IDOR) before collecting sales tax. Businesses must obtain an Illinois Sales Tax Permit and file returns based on their assigned frequency—monthly, quarterly, or annually—determined by sales volume. The base state sales tax rate is 6.25%, but local jurisdictions can impose additional taxes, pushing total rates above 10% in some areas, such as Chicago.
Retailers must also account for use tax. Sales tax applies to in-state transactions, while use tax covers purchases from out-of-state vendors when sales tax was not collected. Businesses purchasing equipment or supplies from online or out-of-state sellers must self-assess and remit use tax on Form ST-1 if sales tax was not charged. Failure to do so can result in penalties and interest if uncovered during an audit.
Employment tax obligations arise when an LLC hires workers. Employers must register with both the IDOR and the Illinois Department of Employment Security (IDES) to handle payroll tax compliance. Businesses must withhold Illinois income tax from employee wages and remit it using Form IL-941, with deposit schedules based on total withholding amounts. Employers with larger payrolls may need to make semi-weekly deposits to avoid penalties. Additionally, businesses must contribute to the state’s unemployment insurance program, with rates varying based on industry classification and claims history.
Extensions and Amendments
If an LLC cannot meet tax deadlines, Illinois allows for extensions. The IRS grants an automatic six-month extension for federal taxes using Form 7004 for corporations or Form 4868 for individuals. Illinois does not require a separate request if no additional tax is owed. The state automatically extends the filing deadline by six months for partnerships and corporations and by seven months for S corporations. However, extensions apply only to filing, not to tax payments—any outstanding liability must still be paid by the original due date to avoid penalties and interest.
If an LLC needs to correct a previously filed return, it must file an amended return using the same form as the original submission—Form IL-1065 for partnerships or Form IL-1120 for corporations—checking the amendment box. Adjustments should reflect changes to federal returns, audit findings, or missed deductions. If an LLC amends its federal return and the changes affect Illinois taxable income, it must notify the state within 120 days to avoid additional penalties.