Understand How LLC Taxes Work for Your Business

New and existing limited liability company (LLC) owners pay taxes differently depending on how many owners their businesses have and what elections, if any, have been made. As a small business owner, it's important to understand the tax implications of your LLC.

This article explains the applicable tax types, the required forms, and the deadlines to track. This way, you'll be able to operate your LLC efficiently, knowing your ongoing obligations are covered.

How Do LLC Taxes Work?

Limited liability companies are treated as pass-through entities by default, meaning LLCs pass income directly to their owners. LLC business owners pay tax on their share of the LLC’s income.

The tax treatment isn't fixed; it's flexible. LLC owners can elect to be taxed as an S corporation by filing IRS Form 2553, Election by a Small Business Corporation, or to be taxed as a C corporation by filing IRS Form 8832, Entity Classification Election

What Are LLC Tax Filing Rules?

An individual or business can establish an LLC by filing organization documents in their state. The LLC’s federal tax treatment depends on whether it has a single owner or multiple owners. Entity election classifications also affect the LLC’s tax filing rules.

Depending on its owners and elections, the LLC will be subject to the tax rules of one of the following business entity types.

Single-Member LLC Filing Requirements

Single-member LLCs have one owner and follow sole proprietorship rules. Sole proprietorships are disregarded entities for income tax purposes. The LLC’s sole proprietor should attach Schedule C to IRS Form 1040, U. S. Individual Income Tax Return, to report the single-member LLC’s activity.

Single-member LLC owners must also file Schedule SE (Form 1040), Self-Employment Tax, to calculate self-employment tax. This form should also be attached to IRS Form 1040.

Multi-Member LLC Filing Requirements

Multi-member LLCs, LLCs with two or more owners, default to partnership tax treatment. Multi-member LLCs should file partnership returns to report their business activity and distribute income to each owner. Business owners should reflect their share of income on their individual tax returns.

Form 1065 is due March 15th for calendar-year filers. The LLC must issue a completed Schedule K-1 to each member before the member can file their personal return.

Corporate Filing Requirements

Your LLC can file an election to be taxed as a corporation.

If your LLC elects C corporation tax treatment, your business should file a C corp tax return and pay corporate income tax. C corps do not automatically pass income to their owners. If your LLC elects S corporation tax treatment, your business should file an S corp tax return. S corps pass income to their owners, who report the activity on their personal income tax returns.

A tax professional can help you determine whether a corporate election fits your business goals.

How Is Income from an LLC Taxed?

An LLC’s income is subject to one or more taxes, depending on its entity structure and business operations.

LLC owners generally pay federal and state income tax. Payroll, self-employment, and sales taxes could also apply.

Federal Income Tax

Single-member and multi-member LLCs automatically pass income through to their owners. Pass-through entities do not pay federal income tax. Instead, the business owners pay federal tax on their share of business income. Pass-through LLC owners may deduct up to 20% of QBI on their personal return. The deduction is now permanent following 2025 legislation.

LLCs with C corp elections lose pass-through entity treatment. LLCs taxed as C corps pay 21% federal income tax. C corp owners pay federal tax on corporate dividends and employee wages they earn.

LLC Payroll Taxes

Payroll taxes apply to all businesses that hire employees, regardless of entity type. If your LLC has employees, you should collect and remit payroll taxes. Employers are responsible for the following taxes on employee wages:

• Unemployment taxes: The 6% federal unemployment tax applies to the first $7,000 of each new employee’s wages. The $7,000 threshold has not been updated in decades. State unemployment tax rates can vary significantly, sometimes substantially reducing the effective FUTA rate through credits. Check your local requirements to ensure compliance.

• Social Security taxes: Employee wages are subject to a 12.4% Social Security tax. Employers and employees split the burden: Your LLC should pay 6.2% of each employee’s wages, and you should withhold an additional 6.2% from employee paychecks up to the wage base, which is $184,500 for 2026.

• Medicare taxes: Employee wages are subject to a 2.9% Medicare tax, split equally between the employer and employee (1.45% each). While Social Security has a wage base limit, Medicare does not.

S corp owner-employees pay payroll taxes on their "reasonable salary," but not on distributions, which is the primary driver of S corp tax savings.

Self-Employment Tax

Traditional employees pay Social Security and Medicare taxes through paycheck withholding. LLC owners do not receive paychecks and must pay self-employment tax on their share of the LLC’s income. Exceptions apply to LLCs with corporate tax elections.

While W-2 employees can't recover any of what they've paid, owners can. LLC owners can deduct half of their self-employment tax from gross income on their personal return, which reduces taxable income.

LLC Sales Taxes

States, cities, and counties impose sales taxes at varying rates. Sales tax rates and applicability depend on the LLC’s business activities. Like payroll taxes, sales taxes apply regardless of the LLC’s business structure.

You should check the local rules to determine whether your LLC is required to pay sales tax. Consult a tax professional with state-specific expertise if your LLC operates in multiple states or sells taxable goods and services online.

Do LLCs Pay State Income Taxes?

State income tax rules vary depending on the LLC’s business structure and entity elections (if any). Some states impose taxes on pass-through entities, while others only tax the business owners. Some states do not impose income tax.

The following chart summarizes typical LLC state filing requirements.

Some states also impose franchise taxes or gross receipts taxes on LLCs regardless of income, such as California's $800 minimum franchise tax.

How LLC Owners Pay Themselves — and How It's Taxed

The way LLC owners pay themselves depends on structure and how they elect to be taxed by the IRS.

• Single-member and multi-member LLC owners typically take owner's draws rather than salaries. Draws are not subject to withholding, which is a reason quarterly estimated taxes are required.

• Multi-member LLC owners may also receive guaranteed payments, which are taxed as ordinary income and subject to self-employment tax.

• LLC owners with an S corp election must pay themselves a reasonable salary, which is subject to payroll taxes. Remaining profits distributed as dividends are not subject to self-employment tax, which is the primary source of S corp tax savings.

LLC Tax Forms and Deadlines

Which tax forms should your LLC file?

Review the following summary of tax returns for each business structure to determine which forms you need and when you should file.

Form 1040, Schedule C, Schedule SE, and 1040-ES

If you operate a single-member LLC, you should report its business income or loss on Schedule C. After calculating your LLC’s business income on Schedule C, determine your self-employment tax on Schedule SE.

Report these figures and calculate your total tax liability on IRS Form 1040, and be sure to attach Schedule C and Schedule SE to it.

Single-member LLC owners and pass-through entity owners must also calculate and submit quarterly estimated tax payments four times annually using IRS Form 1040-ES, Estimated Tax for Individuals.

Form 1065 and Schedule K-1

Multi-member LLCs should report business income or loss on IRS Form 1065, which calculates the LLC’s income distribution to its owners.

Use Schedule K-1 to report each owner’s share of the LLC’s business activity. Complete a separate K-1 for each LLC owner and attach all K-1s to IRS Form 1065.

Form 8832

If you want to elect corporate tax treatment for your LLC, complete and file IRS Form 8832. It's critical to review the instructions and special rules before completing the form.

Form 1120 and Form 1120-S

If you’ve filed a corporate election for your LLC, you should report your LLC’s business activity on a corporate income tax return.

• LLCs taxed as C corporations should report their business activities on IRS Form 1120.

• LLCs taxed as S corporations should report their business activities on IRS Form 1120-S.

LLC Tax Deadlines

What are LLC tax due dates?

Submit a 6-month extension before your due date if you need more time to file your return. Extensions give you more time to file, but you'll need to pay what you owe by the original deadline.

Pass-through entity owners who expect to owe $1,000 or more after credits and withholding must make quarterly payments or face underpayment penalties. They cannot pay their taxes in a lump sum in April. Submit payments by:

• April 15th

• June 15th

• September 15th

• January 15th

Small business tax professionals can help you monitor due dates and calculate your tax payments

What Are LLC Tax Deductions?

LLC tax deductions reduce your taxable income. Your LLC can deduct "ordinary and necessary" operating costs such as employee wages and office supplies.

Other common business expenses include:

• Accounting and bookkeeping software: LLC owners who handle their own taxes and bookkeeping can deduct business software purchases and/or subscriptions.

• Business travel: If you travel for work, transportation, lodging, and incidental costs can be deducted, while 50% of business meals can also be deducted.

• Depreciation expense: Deduct the purchase of qualifying expensive work equipment in the first full year of use via the Section 179 deduction and 100% bonus depreciation.

• Education and training: Professional development, seminars, and other educational costs are deductible as long as they are in the service of your current profession, not a new, unrelated career.

• Legal costs: Fees and other legal costs can be written off in the same year they were incurred.

• Home office deduction: LLC owners who use a dedicated portion of their home exclusively for business can deduct a percentage of home expenses or use the simplified method ($5 per square foot, up to 300 square feet).

• Self-employment tax deduction: LLC owners can deduct half of their self-employment tax from gross income.

• Health insurance premiums: Self-employed LLC owners can deduct 100% of health insurance premiums paid for themselves and their families.

• Retirement contributions: Contributions to SEP-IRA, SIMPLE IRA, or solo 401(k) plans are deductible and can substantially reduce taxable income.

The QBI deduction, allowing pass-through LLC owners to deduct up to 20% of qualified business income, is now permanent. Track your business spending throughout the tax year so you can maximize your LLC tax deductions.

What Are the Tax Benefits of an LLC?

Consider the LLC’s advantages and disadvantages to help you decide how to structure your business.

The primary benefit of LLC status is its flexibility and limited liability protection. As established in this article, you can elect corporate tax status for your single-member or multi-member LLC. The QBI deduction is another key benefit, which is now permanent.

Additionally, LLCs avoid double taxation, which is the concept that C corp income is taxed twice. First, the business pays tax on its income; second, shareholders pay tax on dividend distributions.

What Are the Tax Disadvantages of an LLC?

While LLCs enjoy flexibility, the main disadvantage of the LLC structure is the self-employment tax on business owners’ income.

Additionally, LLC owners need to file quarterly tax estimates or risk fines and penalties, and don't forget about local and state-level taxation. State-level franchise and gross receipts taxes can add to the LLC's overall tax burden, particularly in states like California.

The tax burden and administrative filing requirements can detract from the LLC’s advantages.

Is an LLC Right for Your Business?

When deciding whether you should establish an LLC for your business, consider the following:

• Advantages and disadvantages of the structure

• State and local tax rates

• Administrative filing requirements

• Future business expansion

• Self-employment tax burden

Small businesses can benefit from the simplicity of the LLC structure. As your business expands, you could consider a corporation election to avoid self-employment tax.

A tax advisor can help you model the tax impact of each structure before you commit.

How Can I Get Help with LLC Tax Questions?

From the outside looking in, LLC taxes can be intimidating. The good news is that LLC taxes are manageable once you know which structure you're formed as, which forms apply, and when payments are due. Staying on top of quarterly estimates, tracking valuable deductions throughout the year, and understanding your election options can help keep your tax bill manageable and ensure your filings are submitted on time.

If you're ready to work through those details with a dedicated tax advisor, explore 1-800Accountant's small business tax services to see what year-round professional support looks like for your LLC operations.