There are numerous methods to tax an LLC at the federal level, depending on its form. We will walk you through the filing procedure of the two most typical LLC tax structures—disregarded entities (Single-Member LLCs) and partnerships—in this tutorial (Multi-Member LLCs).
Table of Contents
How Do I File Taxes for a Single-Member LLC?
When it comes to taxes, single-member LLCs are regarded the same as sole proprietorships unless they want to be a corporation. As a result, the IRS considers the LLC to be a “disregarded company,” which means you must record all earnings and losses on your personal tax return, often known as form 1040.
Furthermore, disregarded entities must complete two forms (Schedule C and Schedule SE) detailing their business costs and revenue. These “schedules” are filed with your personal tax return.
Form 1040
Individuals utilize this form to file their personal tax returns. If owners of Single-Member LLCs functioning as disregarded entities earn more than $400 through self-employment, they must file Form 1040.
You will file your personal tax return as usual, but with Schedule C attached. If you are the only proprietor, you must assess all revenue and costs linked to your firm. The entire profit is shown on line 12 of your personal tax return.
If you own rental property or have other business-related interests, your earnings will be reported on Schedule E. On a separate sheet, these calculations are also performed.
Schedule SE is also where you record your self-employment tax deductions (Form 1040)
Schedule C of Form 1040 is devoted to monitoring the income and losses of firms taxed as sole proprietorships, including Single-Member LLCs that have not adopted corporation status. Profits reported on this form will appear on line 12 of your personal tax return.
In the first section of Schedule C, you must provide the general nature of your business. This includes the following:
Name and Social Security Number of the Owner (SSN)
Business and Professional Code Description: The codes for each occupation are included at the bottom of the IRS Schedule C instructions.
Name and address of the company
EIN (Employer Identification Number): If your LLC employs people, you must get an EIN. If you are self-employed, you do not need an EIN; leave this area blank.
Method of Accounting: Choose whether your company’s accounting is done on a cash basis (recording money as it comes in) or an accrual basis (recording income as it comes in).
Material Participation: If you devote a significant amount of time and effort to your company, you are termed a “material” participant.
Schedule C is broken down into five pieces. The following are the fundamental instructions for each section:
Income: This is where you record all of your company’s income from the previous tax year. This does not include any costs or deductions; it is just the total of all funds received by your company from all sources. If your items have been reduced in price or returned, you must also mention this.
Part II is divided into sections based on regular company expenditures such as advertising, travel, and rent. Your home’s business consumption is measured independently from these categories.
Line 31: Gross Profit (or Loss): If you make a profit after deducting your business expenditures, you must enter it on the appropriate line. If there is a loss, you must record it and state how much of your own funds are at danger. In any event, you must report any profit or loss on Form 1040.
Cost of Goods Sold: If your company manufactures and/or sells items, you must keep track of your inventory at the beginning and end of the year.
Vehicle Information: If you use a vehicle for business reasons, you must keep track of the miles travelled for such purposes.
Other Expenses: Include any other transactions, such as start-up charges, in the last part of this form.
SE Schedule (Form 1040)
Owners who earn at least $400 must pay self-employment tax on Schedule SE, Section B.
How Do I File Taxes for My Multi-Member LLC?
If you are a Multi-Member LLC, the IRS considers you to be a partnership for tax reasons. Your taxes, like those of a Single-Member LLC, will travel through the LLC and onto the personal tax returns of each owner.
Multi-Member LLCs, unlike Single-Member LLCs, do not need to complete a Schedule C form. Instead, the owners will complete paperwork outlining the entire partnership revenue as well as their personal portion.
Form 1040
As a member, you will complete Form 1040 as usual. Profits from rental real estate or other business-related assets will be reported on line 17 if you are a partnership, S Corporation, or have other business-related interests. These calculations are also performed on a separate sheet referred to as Schedule E.
You must record your self-employment tax deductions under the “Adjusted Gross Income” section.
SE Schedule (Form 1040)
Owners who earn at least $400 per year must pay self-employment tax using Section B of Schedule SE.
You must file this form along with your personal tax form to report any extra income from your partnership.
Part two of Schedule E deals with partnership income and loss; since this is part of your personal taxes, you simply need to record your portion of your business’s revenue. In order to complete Schedule E, you must use the figures from Schedule K-1.
Form 1065
While each owner will report their shares on Form 1040 and Schedule K-1, your business will use this form to report your Multi-Member LLC’s total income and loss. You must supply the following information about your company:
Name and address of the company
The primary business activity is where you explain what your company does. Line C requires you to provide a code that best describes your action. The codes are listed on page 49 of the IRS form 1065 instructions.
EIN (Employer Identification Number): Multi-Member LLCs must have this. Form SS-4 may be used to apply for an EIN.
Assets in total: You do not need to record your total assets in line F if your firm earned less than $1 million at the end of the tax year.
Return Status: This is only significant if you are filing for the first time as a company (initial return), the last time (final return), or if you need to make modifications to a form that has already been filed (amended return).
Accounting Method: Determine if your company’s accounting is done on a cash basis (recording money as it comes in) or an accrual basis (recording income as it comes in).
Form 1065 is divided into seven major components. The following are the fundamental instructions for each section:
Income: This is where you record all of your company’s income from the previous tax year. This does not include any costs or deductions; it is just the total of all funds received by your company from all sources. If your items have been reduced in price or returned, you must also mention this.
Deductions: Your deductions are derived from areas such as employee pay (excluding owners), rent, and employee perks. The purpose of this part is to calculate your earnings and losses for the tax year.
LINE 22: Ordinary Business Income: The result of deducting your income from your deductions.
Schedule B: This part contains a number of questions on the structure of your company and any businesses that have an interest in it. If your company is partially owned by another corporation, you may be obliged to submit Schedule B-1.
Schedule K: The section “Partners’ Distributive Share Items” outlines all partners’ shares. Schedule K-1 will be required for each owner to record their own part of the company.
Schedule L: The balance sheet portion contains information about your company’s obligations, equity, and assets. If you currently utilize a balance sheet to keep track of your bookkeeping, this information should be easily accessible to you.
Schedule M-1: Use this part to report costs that are in your accounting records but aren’t always tax deductible.
Schedule M-2: The last component of this form calculates the amount of money your company has available for expenditure after taxes.
K-1 timetable (Form 1065)
Part I: This component includes information regarding the partnership as an entity, such as the EIN, address, and IRS filing location.
Part II: The owners themselves are addressed in Part II, including their personal address and taxpayer identification number (SSN, ITIN, or EIN). You will be required to record your percentage share of earnings and losses. If you work with capital accounts and liabilities, you would enter your shares and balances into the appropriate areas.
Part III: You may compute your portion of total revenue by knowing your share of profits and losses. If your company engages in rental real estate, you will additionally need to fill out Schedule E with extra information (1040). Check page 2 of the form for the specific Schedule K-1 codes.