Annual federal tax filing is a statement of income and expenditure of the business. Note that any tax to be paid on the profits made by your business is declared in this filing. The return also includes details of the assets and liabilities held by the business.
Also note that items such as fixed assets, debtors and creditors of the business, loans taken, and loans given will be declared here. However, when it comes to income taxes, most LLCs are considered pass-through tax entities. This simply entails that the responsibility of paying federal income taxes passes through the LLC itself and falls on the individual LLC members.
In most states in the United States, LLCs themselves do not pay income taxes, only their members do. Truth be told, this is one of the many perks of forming your company as a limited liability company (LLC). Other perks include greater business legitimacy, protection of your personal assets, and more tax planning strategies.
However, operating an LLC also comes with certain ongoing compliance responsibilities, such as filing annual reports and paying the necessary fees and/or franchise tax. A good number of states also require LLCs to file certain initial reports shortly after formation.
Have in mind that LLCs are not recognized as an entity. You create and register an LLC in a state, but as far as the IRS is concerned, there’s no income tax form for an LLC. Howbeit, it doesn’t mean you get to avoid paying income taxes altogether.
Note that the IRS will assign a default tax status based on whether it is a one-person LLC or a more than one-person LLC. Also, have it in mind that business owners can select how they want their LLC taxed.
In the United States, they can either be taxed as a sole proprietorship (one owner), partnership (two or more owners), or corporation (any number of owners). If you don’t make a choice, by default, your LLC will be taxed as a sole proprietorship or partnership.
When are Annual Federal Tax Filings for Limited Liability Companies Done?
The filing date for annual tax returns for an LLC usually varies from one state to another and may also vary from other entity types even within a particular state. Most often, the due date is stipulated by either a fixed date conforming to entity type or a due date based on the anniversary of your LLC’s formation or qualification in that state.
However, in recent times, states are beginning to work with the LLC formation anniversary date as the due date. While this may seem ideal, have it in mind that it makes it quite challenging for business owners to keep track of due dates. To further aggravate matters, owing to a reduction in resources, a good number of states have stopped forwarding reminders to alert business owners that their annual tax filings are due.
To ensure you avoid fines and penalties, the task of tracking all necessary due dates falls on the business owner. If you are registered to do business in more than one state, you may also be expected to file annual tax returns in each state.
How are Annual Federal Tax Filings for Limited Liability Companies Done?
Note that how you file and pay annual taxes for your LLC will depend on whether your LLC has one owner (a single-member LLC), multiple owners (a multi-member LLC), or a corporation.
As A Single-Member LLC
If you are the only member of your LLC, then have it in mind that the IRS will treat your tax status as a disregarded entity (unless you elect otherwise). It simply means that your tax status will be quite similar to a sole proprietorship (i.e., the business will not be considered separate from the owner for tax purposes).
It also entails that all profits or losses will pass through to you as the owner. To pay taxes as a single-member LLC, you will be expected to file Schedule C with your personal income tax return. On Schedule C, you will have to report the income and expenses from your business.
Ideally, that amount will then be added as income or loss on your personal tax return Form 1040. However, if your LLC owns rental properties, the information would be included in Part I of Schedule E rather than Schedule C. These tax returns are due by April 15, along with your personal tax return.
As A Multi-Member LLC
Truth be told, the filing gets a little more complicated here, especially when compared with a single-member LLC. If more than one person owns the LLC, then your default tax status will be considered or treated as a partnership. In the United States, the LLC will have to fill out a partnership information return, Form 1065.
It will also have to make available a Schedule K-1 to each member of the LLC, and this is expected to include each partner’s share of income, deductions, and credits. On your Form 1040, you will also have to note the information from your K-1 on Part II of Schedule E.
Form 1065 and Schedule K-1 will have to be submitted by March 15. Reporting that information on your Form 1040 and Schedule E are due by April 15.
As A Corporation
As an LLC, you can elect to alter your tax status. While you can choose to stick with the default options noted above, note that you can elect to file as a C Corporation. Have it in mind that this election doesn’t change your business structure.
While your business will still operate as an LLC, it only changes how the IRS expects you to file and pay federal income taxes. If you intend the IRS to tax your LLC as a C corporation, you will have to submit Form 8832 to make this election with the IRS. You will then have to complete and file Form 1120 annually for your business tax return.
The 1120 is due April 15 (based on the business using a calendar year)
As An S Corporation
If you elect to file as an S Corporation, then you will have to complete and submit Form 2553 with the IRS. Once approved, you will then file Form 1120-S annually for your S corporation tax return. However, note that an S corporation is a pass-through entity, and this entails that it doesn’t pay taxes itself.
Have it in mind that any income and expenses will have to flow through to your personal tax return. It also means you will have more forms to fill. Every member of your LLC will get a Schedule K-1 and will report that information on Part II of Schedule E, which gets filed along with Form 1040.
The 1120 S and K-1 are due March 15 (based on the business using a calendar year).
By having a good understanding of the obligations of your specific tax structure and noting the deadlines, you can file your taxes on time and avoid unnecessary stress. If you can’t get your LLC taxes done by those due dates, you must file an extension.
Note that intentionally ignoring a deadline will only lead to failure to file penalties! Have it in mind that this gives you an extension to file your taxes, but you will still be expected to pay your taxes by the original due date.