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How to File Taxes for an LLC with No Income

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Published on November 8, 2021

Updated on November 11, 2021

How to File Taxes for an LLC with No Income

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How to File Taxes for an LLC with No Income

If you’ve put your business on hold, or just haven’t started doing business yet and so your LLC has no income, do you have to file taxes for your LLC? The short answer is it depends. As an LLC you can choose to be taxed as a sole proprietorship, partnership, or corporation. Which option you’ve decided on affects if and how you will file taxes.

What Is an LLC?

An LLC (Limited Liability Company) is a popular business structure for startup companies of all types. An LLC is a type of legal business structure that offers limited liability protection for the owners and provides more flexibility than a corporation, particularly in terms of taxes. The LLC itself does not pay taxes. Income from the business “passes through” to the owners who report the income on their personal tax return. An LLC is created by filing paperwork with your state, and nominal fees are involved.

An LLC offers the owner or owners a lot of flexibility in terms of management. You can choose your management and operational structure and decide how you want to be taxed. Your LLC can have a single member or multiple members. In an LLC, you and all members have personal liability protection, meaning your personal assets are not at risk of you cannot pay business debts or you are involved in a lawsuit.

Tax Election Options

If your LLC has only one member, for tax purposes you are considered a sole proprietorship, and the IRS disregards your LLC in terms of tax liability. You report income and losses on your personal tax return and pay taxes at your personal income tax rate.

If your LLC has more than one member, you will be treated by the IRS as a partnership. You do need to file a return for your LLC, but it is for informational purposes only. The income or losses are passed through to the members to be reported on their personal tax returns.

You can elect to have your LLC taxed as a corporation by filing Form 8832. LLC owners may do this in order to report less income personally, or to avoid self-employment tax. If you make this election, you will file a corporate tax return.

If Your LLC Is Considered a Sole Proprietorship for Tax Purposes

If you are the sole member of your LLC, you are taxed like a sole proprietorship. All income and losses are reported on your personal tax return on a Schedule C. If your LLC generates more than $400 per year, you are required to report it on a Schedule C. If your LLC has no income and no activity, you are not required to report that on a Schedule C. However, if you are filing a personal tax return, you may need to file a Schedule C for self-employment income.

If Your LLC Is Considered a Partnership for Tax Purposes

An LLC with more than one member is taxed as a partnership and needs to file Form 1065, a U.S. Return of Partnership Income, for informational purposes only. Individual members report income and losses on their personal tax return. If the LLC has no income or losses, and no activity, a partnership return is not required. If you have any credits or expenses that you would like to claim on your personal tax returns, however, you will need to file a partnership tax return.

If Your LLC Is Taxed as a Corporation

You can elect to be taxed as a C-Corp by filing Form 8832, or an S-Corp by filing Form 2553. In an S-Corporation, income is passed through directly to shareholders, without that income being taxed as corporate income, therefore the business is not responsible for corporate taxes. Instead, it is taxed as a partnership.

LLCs electing to be taxed as C-Corps must file Form 1120, a U.S. Corporation Income Tax Return. LLCs taxed as corporations will pay corporate taxes on the LLC income, and members will pay taxes on dividends they receive. Form 1120 must be filed whether or not the LLC has income.

LLCs electing to be taxed as S-Corps must file Form 1120-S annually, regardless of business activity. However, S-Corps are pass through entities, so no corporate taxes are paid. Members report income on their personal tax returns.

If Your LLC Had No Income

LLCs taxed as sole proprietorships or partnerships are not required to file federal LLC tax returns if the LLC has no activity. Some states, however, do require that LLCs file tax returns even if they are pass-through entities. LLCs taxed as corporations, both C-Corps and S-Corps, must always file a federal tax return, regardless of activity. Be sure to always check your state regulations for state tax filing requirements for your LLC, whether your LLC has income or not.

If your business has income or expenses, you must file taxes, period. Again, be aware of state as well as federal regulations since laws differ from state to state. When in doubt, check with a tax professional. Penalties for missing required filings can be steep.