The amount of taxes an LLC pays depends on several factors, including its tax classification (default or elected), the state where it’s registered, and the type of business it conducts. Here’s a breakdown:
Federal Taxes
An LLC is a pass-through entity by default, meaning profits and losses are reported on the owner’s personal tax return. However, an LLC can elect to be taxed as an S-corporation or C-corporation.
Single-Member LLC (Default)
- Self-Employment Tax: 15.3% (covers Social Security and Medicare)
- Income Tax: Based on personal tax brackets (10%-37%)
- Deductions: Business expenses can reduce taxable income
Multi-Member LLC (Default)
- Profits are split among members and reported on Schedule K-1
- Each member pays income tax on their share
- Each member pays self-employment tax (15.3%) unless they opt for S-corp taxation
LLC Taxed as an S-Corp
- Owners pay themselves a reasonable salary (subject to payroll taxes)
- Remaining profit is distributed as dividends, which are not subject to self-employment tax
- Payroll Taxes (Social Security & Medicare): Paid on salary, not on distributions
LLC Taxed as a C-Corp
- Corporate Tax: Flat 21% on profits
- Dividend Tax: If profits are distributed, they are taxed again on the owner’s personal return (double taxation)
State Taxes
State taxes vary widely. Here are some common state taxes for LLCs:
- Franchise Tax: Some states charge an annual fee (e.g., California: $800 minimum)
- State Income Tax: If the state has an income tax, members will pay on their share of LLC profits
- Gross Receipts Tax: Some states tax revenue instead of profit
Example State Taxes:
| State | LLC Annual Tax |
|---|---|
| California | $800 minimum (plus additional if revenue > $250K) |
| Texas | No income tax, but a franchise tax applies if revenue > $1.23M |
| Florida | No state income tax on individuals |
| New York | Varies by county; LLC filing fees apply |
| South Dakota | No income or franchise tax |
Other Possible Taxes
- Sales Tax: If selling goods/services subject to sales tax
- Employment Taxes: If you have employees, you must withhold federal & state payroll taxes
- Local Business Taxes: Some cities/counties require annual business licenses or fees