If you’re reading this, chances are you’re running an LLC. Congratulations. That’s a big step.
Now, let’s talk about taxes. Filing for your LLC might be overwhelming at first, but once you break it down, it’s actually pretty manageable.
Here’s what you need to know to get it done smoothly:
➼ Determining your LLC’s tax classification
➼ Gathering necessary documents
➼ Deciding how to file (online, paper, or with a professional)
➼ Understanding deadlines and filing on time
➼ Avoiding common mistakes
➼ Claiming tax deductions that reduce your tax burden
Continue reading to understand these steps in detail and ensure you file your LLC taxes correctly the first time.
Why Filing Taxes for an LLC is So Important
Trust me, you don’t want to skip or delay filing your taxes.
According to the IRS, the failure to file can result in penalties, and those penalties can rack up quickly.
For example, missing the filing deadline for your Form 1065 (if you’re part of a multi-member LLC) can cost you $205 per month for each month the return is late, per partner. That penalty can add up fast.
Even though LLCs are pass-through entities, meaning the business itself doesn’t pay taxes, you still have to file taxes to report your share of the profits and losses. Failing to file your taxes can result in serious consequences that can easily be avoided with the right knowledge.
Understanding LLC Taxes
Your LLC can be taxed in several ways, depending on how it’s set up and how many members (owners) it has.
The IRS gives you the flexibility to choose your tax treatment:
⦿ Single-member LLC (SMLLC):
If you’re the only owner, you’ll be taxed like a sole proprietor. This means that all the income from your LLC is reported on your personal tax return, using Schedule C (Form 1040).
⦿ Multi-member LLC:
If your LLC has multiple owners, you’ll need to file Form 1065, an informational return, which details the income, deductions, and credits for the business.
The profits or losses are passed along to the individual members via Schedule K-1, which they then report on their tax returns.
Steps to File LLC Taxes for the First Time
Here’s a breakdown of the steps you need to take to ensure you’re filing everything correctly:
1. Determine Your LLC’s Tax Classification
The first step is to determine your LLC’s tax classification.
For a single-member LLC, the process is fairly straightforward: you’ll file as a sole proprietor and report your LLC’s income and expenses using Schedule C.
For a multi-member LLC, you’ll need to file Form 1065 for the business. But you won’t pay taxes directly from the LLC itself. Instead, the profits or losses will be “passed through” to each member’s personal tax return.
You’ll also need to distribute a Schedule K-1 to each member, showing their share of the LLC’s income.
2. Gather Your Tax Documents
To file correctly, you need to have all your documents in order. Here’s what you’ll need to get started:
⦿ Income and Expense Records:
Make sure you have accurate records of all your income and any expenses the business has incurred. This includes things like receipts, invoices, and statements.
⦿ Form 1065:
If you’re a multi-member LLC, this is the form you’ll need to file to report the LLC’s income, deductions, and credits.
⦿ Schedule C (Form 1040):
If you’re a single-member LLC, you’ll need this form to report income or loss from your business.
If your LLC has employees, you’ll need to file this form to report payroll taxes quarterly.
3. Choose Your Filing Method
When it comes to actually filing, you’ve got a few options:
⦿ Online Filing:
Tax software like TurboTax or H&R Block makes filing your LLC taxes easy. These platforms walk you through the forms and ensure you file correctly.
⦿ Hire a Professional:
If this is your first time, you might feel more comfortable having an accountant or tax professional help you. They can make sure everything is filed properly and even advise you on ways to save on taxes.
⦿ Paper Filing:
If you prefer the old-school way, you can still mail your forms to the IRS. Just make sure you keep copies for your records.
4. File by the Deadline
The deadlines to keep in mind are:
⦿ For Single-member LLCs: File your taxes by April 15 (or the next business day if it falls on a weekend or holiday).
⦿ For Multi-member LLCs: Form 1065 is due by March 15 (or the next business day).
⦿ Payroll Taxes: If you have employees, payroll taxes are due quarterly (on the 15th of the month following the quarter).
If you can’t file on time, you can request an extension, but remember, an extension to file is not an extension to pay.
Common Mistakes to Avoid
Filing taxes for your LLC can be tricky, especially the first time around. Here are some common mistakes to avoid:
➼ Not Keeping Accurate Records:
One of the biggest mistakes new LLC owners make is not keeping thorough records. If you can’t find the receipts or track expenses accurately, you might miss out on valuable tax deductions.
➼ Incorrectly Classifying Workers:
If you have employees or independent contractors, make sure you classify them correctly. Misclassifying someone could lead to penalties or missed tax filings.
➼ Overlooking Deductions:
LLCs can claim many deductions, such as office expenses, vehicle costs, and business travel. Failing to keep track of these expenses could mean paying more in taxes than you need to.
Example of a Potential Deduction
Let’s say you’re a multi-member LLC that specializes in marketing services.
You and your business partner decided to start this LLC and filed Form 1065 to report the business’s income, which is $200,000 for the year.
Now, let’s go over the deductions. Your LLC has the following expenses:
⦿ Office Rent: $12,000 per year
⦿ Advertising: $5,000
⦿ Travel Expenses: $3,000
⦿ Employee Salaries: $70,000
So, after deducting these expenses from your gross income of $200,000, your taxable income is $110,000. Each of you, as a 50% owner of the LLC, would receive a Schedule K-1 showing $55,000 in income to report on your returns.
This means each of you would report $55,000 on your tax return. However, you can further reduce your taxable income with personal deductions, like mortgage interest, student loans, and other items.
The key here is understanding how your LLC’s deductions work in the larger context of your finances.
How to Keep Accurate Records for Hassle-Free Tax Filing
We’ve seen how keeping accurate records is important when filing your LLC taxes. But how do you actually do this in a way that keeps things organized and stress-free?
Proper record-keeping ensures you report income correctly, maximize deductions, and avoid IRS penalties.
Here’s how to stay on top of it:
➡ Use PaystubHero for Easy Payroll Tracking
Keep precise records of payments to yourself or employees with professional, automatically generated pay stubs.
For example, if you take a draw or pay yourself a set amount each month, having clear pay stubs can help you track how much you earned and set aside the right amount for taxes.
Similarly, if you have employees, you’ll need accurate payroll records when filing Form 941 for payroll taxes and preparing W-2s at year-end.
This is where PaystubHero can make things easier. Instead of manually tracking payments, you can generate professional pay stubs instantly and W2s, ensuring you have well-documented proof of income. This makes filing your LLC taxes smoother and helps avoid issues if the IRS ever requests documentation.
Want to keep your tax records organized?
Try PaystubHero to generate accurate these docs in minutes and make tax season hassle-free.
FAQs
Below, we’ve answered common questions about filing taxes for the first time as an LLC.
