If you’ve recently formed a limited liability company (LLC), you may have some tax questions. One of the most important is about when LLC taxes are due. The answer is that it depends on how your LLC is taxed.
LLCs are unique in terms of taxation as their owners have a choice about how the company will be taxed. By default, an LLC is taxed like a sole proprietorship if it has one member and a partnership if it has more than one member.
In both cases, business income “passes through” to the members, who report profits and losses on their individual tax returns. The LLC itself is not taxed, which simplifies the process for members. Also, losses and operating costs of the business can be deducted personally by the members. Taxes are paid at the personal tax rate of the members, although the owners may also have to pay self-employment taxes.
Note that a multi-member LLC must also file form 1065 with the IRS, which is the U.S. Return of Partnership Income. Attached to this will be K-1 forms for each member showing their share of the business income.
But LLCs owners can instead choose to be taxed as a corporation. To do so, the LLC must file a document, referred to as an election, with the IRS. The LLC must then decide if it wishes to be taxed as an S corporation or a C corporation.
C-Corp status means profits are taxed at the current rate for corporations (21% as of early 2022), which is significantly lower than the typical individual taxpayer rate. But keep in mind, C-Corp shareholders, which includes members, must also pay taxes on their distributions (but not self-employment taxes). Thus, the C-Corp is subject to what is sometimes referred to as double taxation.
As with sole proprietorship and partnership status, S-Corp taxation considers the LLC a pass-through entity, which means income passes through the company and into the hands of the owners. At this point, taxes are applied at the same rate as those of individual taxpayers.
S-Corps use Form 1120S to file their taxes, which is used to report the income, losses, and dividends of shareholders. S-Corp shareholders do not pay self-employment taxes, which is the primary advantage of S-Corp status compared to sole proprietorship or partnership.
Generally, S-Corp tax status is beneficial if the company is profitable enough to pay the owners a salary and at least $10,000 in annual distributions so the owners can be taxed as employees and not pay self-employment taxes. It costs more to run an S-Corp than an LLC due to additional bookkeeping and payroll expenses. Thus, the tax benefits should be more than the additional costs for an S-Corp status to make financial sense.
When Taxes Are Due
If you have a single-member LLC and have not elected to be taxed as a corporation, the answer is simple. Your LLC income passes through to you and taxes are paid on your personal tax return, due April 15th.
For multi-member LLCs taxed as partnerships or LLCs (whether single-member or multi-member) you will have to choose whether your accounting will be based on a calendar year, which is January to December, or a fiscal year. A fiscal year is a 12-month period starting from any date you choose. For example, your LLC’s fiscal year could run from May 1st to April 30th.
If you choose to be taxed as a C-Corp and use a calendar year, your taxes will be due on or around April 15th. If you use a fiscal year, your taxes will be due on the 15th day of the 4th month after your fiscal year ends. For example, if your fiscal year ends April 30th, your taxes will be due August 15th.
If you choose to be taxed as an S-Corp, you have to use a calendar year and your taxes, which are paid by filing your personal tax return, will be due March 15th.
If you’re taxed as a partnership, if you use a calendar year, your taxes will be due March 15th. If you use a fiscal year, taxes will be due on the 15th day of the 4th month after the end of your fiscal year, as with a C-Corp.
To answer the title question, again, it depends how your LLC is taxed. Taxes for a business can be complicated, so your best bet is to have your tax advisor involved early so they can advise you on the best way to handle your taxes. It’s worth the cost of a tax advisor to avoid costly tax mistakes.