One of the most common questions from new LLC owners is: "How exactly does my LLC get taxed?" The answer depends on how many members your LLC has, what tax classification you have chosen, and which state you are in. This guide breaks it all down in plain English, without the IRS jargon.
Quick Answer
By default, LLCs use pass-through taxation. The LLC itself pays no federal income tax. Instead, profits pass through to the members' personal tax returns and are taxed at their individual rates. A single-member LLC is taxed like a sole proprietorship (Schedule C). A multi-member LLC is taxed like a partnership (Form 1065). LLCs can also elect to be taxed as an S-Corp or C-Corp for potential tax advantages.
IN THIS GUIDE
- Pass-through taxation: the default for LLCs
- Single-member LLC taxes
- Multi-member LLC taxes
- Self-employment tax on LLC income
- LLC tax deductions
- State taxes on LLC income
- Alternative tax elections: S-Corp and C-Corp
- How to file taxes for an LLC for the first time
- Frequently asked questions
Pass-Through Taxation: The Default for LLCs
The IRS does not have a separate "LLC" tax classification. Instead, it taxes LLCs based on their structure: single-member or multi-member. In both cases, the default is pass-through taxation, meaning the LLC itself owes no federal income tax. Profits and losses flow directly to the members and are reported on their personal tax returns.
This is one of the key advantages of an LLC: you avoid the double taxation that C-Corporations face, where the company pays corporate tax on profits and shareholders pay income tax again on dividends.
Single-Member LLC Taxes
The IRS calls a single-member LLC a "disregarded entity." This means the IRS ignores the LLC as a separate taxpayer and treats the owner as a sole proprietor for federal tax purposes.
How you file: Schedule C
You report your LLC's income and expenses on Schedule C, which attaches to your personal Form 1040. Your net LLC profit (revenue minus deductible expenses) is your taxable business income. You do not file a separate tax return for the LLC.
What you owe: income tax + self-employment tax
Your net LLC profit is subject to both regular federal income tax (at your personal marginal rate) and self-employment tax (15.3% on the first $168,600 in 2024, 2.9% above that). Self-employment tax covers Social Security and Medicare contributions that an employer would otherwise split with you.
Good news on SE tax deduction
You can deduct half of your self-employment tax on your personal return as an above-the-line deduction. If you owe $10,000 in SE tax, you deduct $5,000 from your gross income before calculating your income tax. This partially offsets the SE tax burden.
Multi-Member LLC Taxes
A multi-member LLC is taxed like a partnership by default. The LLC does not pay federal income tax itself, but it does file an informational return.
LLC files Form 1065 (partnership return)
The LLC files Form 1065 with the IRS each year. This return reports the LLC's income, deductions, and each member's share of profits and losses. It is an informational return only: no tax is paid at the LLC level.
Each member receives a Schedule K-1
The LLC issues a Schedule K-1 to each member, showing their allocated share of income, deductions, and credits. Members use their K-1 to report LLC income on their personal Form 1040. Each member pays income tax and self-employment tax on their allocated share, even if no cash distribution was made that year.
Important: tax on allocated income, not just distributions
In a multi-member LLC, you owe income tax on your allocated share of profits whether or not the LLC actually paid you anything. If the LLC earned $100,000 and allocated 50% to you, you owe tax on $50,000, even if that money stayed in the LLC account. This is why tax distribution provisions in your operating agreement matter.
Self-Employment Tax on LLC Income
Self-employment (SE) tax is one of the biggest surprises for new LLC owners. As an LLC member who actively works in the business, you pay both the employee and employer portions of Social Security and Medicare tax, which equals 15.3% on net earnings up to $168,600 (2024 limit).
The SE tax rate breaks down as: 12.4% for Social Security and 2.9% for Medicare. Above $200,000 in net earnings, an additional 0.9% Medicare surtax applies.
Passive members of a multi-member LLC who do not actively participate in management may be exempt from SE tax on their distributions, but the rules are complex and fact-specific. Consult a CPA for your situation.
LLC Tax Deductions
LLC owners can deduct ordinary and necessary business expenses from gross revenue before calculating taxable income. Common deductions include:
- Home office deduction. If you use part of your home exclusively and regularly for business, you can deduct a portion of rent, mortgage interest, utilities, and insurance.
- Business vehicle expenses. Either actual expenses (gas, insurance, maintenance) or the standard mileage rate (67 cents per mile in 2024) for business use of your vehicle.
- Health insurance premiums. Self-employed LLC owners who are not eligible for employer-sponsored insurance can deduct 100% of health insurance premiums for themselves and family members.
- Retirement plan contributions. Contributions to a SEP-IRA, SIMPLE IRA, or solo 401(k) reduce your taxable income. Contribution limits are generous for self-employed individuals.
- Business equipment and software. Computers, phones, software subscriptions, and other tools used for business are deductible. Section 179 allows full expensing in the year of purchase for qualifying assets.
- Professional services. CPA fees, legal fees, and formation costs (including Brendat's service fee) are deductible business expenses.
- Education and training. Courses, books, and seminars directly related to your current business are deductible.
- Business insurance. Premiums for general liability, professional liability, and other business insurance are deductible.
Keep clean records from day one
Maintain a dedicated business bank account and credit card. Never mix personal and LLC expenses. Clean records make tax filing easier, maximize deductions, and protect your liability shield. Brendat's Standard plan includes an EIN, which you need to open a business bank account.
State Taxes on LLC Income
In addition to federal taxes, LLCs may owe state-level taxes. These vary significantly by state.
- State income tax. Most states with an income tax require LLC members to pay state income tax on their share of LLC profits. A few states, like Texas, Florida, and Nevada, have no personal income tax.
- Annual franchise tax or LLC fee. Many states charge an annual fee just for the privilege of having an LLC. California charges a minimum $800/year regardless of revenue. Delaware charges a minimum $300/year franchise tax. Most other states charge $50 to $200/year.
- Gross receipts tax. Some states (Texas, Ohio, Washington) impose a gross receipts tax on business revenue rather than net income. This applies even if the LLC was not profitable.
- State LLC fee based on revenue. California also charges an additional fee on gross receipts above $250,000, on top of the $800 minimum franchise tax.
Always check your specific state's requirements. Keeping your LLC in good standing with your state, including paying annual fees on time, is essential. See our guide on what happens when LLC filings go stale for why this matters.
Alternative Tax Elections: S-Corp and C-Corp
LLCs are not locked into default pass-through taxation. Two alternative elections are available.
S-Corp election
By filing IRS Form 2553, an LLC can elect to be taxed as an S-Corp. The main benefit: you pay yourself a reasonable salary and take remaining profits as distributions, which are not subject to self-employment tax. This can save several thousand dollars per year once net profit exceeds $60,000 to $80,000. See our full guide on LLC vs S-Corp for a complete breakdown of when this makes sense.
C-Corp election
By filing IRS Form 8832, an LLC can elect to be taxed as a C-Corporation. C-Corps pay a flat 21% corporate tax rate, then shareholders pay tax again on dividends (double taxation). This election is rarely beneficial for small businesses but can make sense for LLCs planning to raise venture capital or retain earnings for reinvestment at the corporate level.
How to File Taxes for an LLC for the First Time
If this is your first year operating as an LLC, here is what you need to do.
- Get an EIN if you do not have one. You need an Employer Identification Number to file business taxes. Brendat's Standard plan includes EIN filing, or you can apply directly at IRS.gov for free.
- Track all income and expenses throughout the year. Use accounting software or a spreadsheet to record every transaction. Separate categories make tax preparation faster and help identify deductions.
- Single-member LLC: complete Schedule C. Attach it to your personal Form 1040. Report total revenue, subtract deductible expenses, and the net profit is your taxable business income. Also complete Schedule SE to calculate self-employment tax.
- Multi-member LLC: file Form 1065 by March 15. The partnership return is due March 15, one month before the personal return deadline. Issue K-1s to all members so they can complete their personal returns.
- Pay quarterly estimated taxes. LLC income is not subject to withholding. If you expect to owe more than $1,000 in federal tax for the year, pay quarterly estimated taxes to avoid underpayment penalties. Deadlines are typically April 15, June 15, September 15, and January 15.
- Work with a CPA. The first year of LLC taxes has the steepest learning curve. A CPA can identify deductions you might miss, ensure you pay the right estimated amounts, and help you decide whether an S-Corp election makes sense for your income level. Brendat is not a tax advisor and does not provide tax advice.
Quarterly estimated tax deadlines 2026
Q1 (Jan to Mar): April 15. Q2 (Apr to May): June 16. Q3 (Jun to Aug): September 15. Q4 (Sep to Dec): January 15, 2027. Missing these deadlines results in underpayment penalties even if you pay your full tax bill by the April filing deadline.
Frequently Asked Questions
Does an LLC pay taxes?
By default, no. A standard LLC does not pay federal income tax as an entity. Income and losses pass through to the members' personal tax returns. The members pay income tax and self-employment tax on their share of LLC profits. An LLC that has elected C-Corp tax treatment is the exception: it pays corporate tax at the entity level.
How are single-member LLC taxes different from a sole proprietorship?
For federal income tax purposes, they are treated identically. Both report income on Schedule C and pay self-employment tax on net profit. The critical difference is liability protection: a sole proprietor's personal assets are exposed to business debts and lawsuits, while an LLC member's personal assets are protected. The tax treatment is the same; the legal protection is not.
What is the LLC self-employment tax rate?
Self-employment tax is 15.3% on net earnings up to $168,600 (2024 threshold), then 2.9% on earnings above that amount. An additional 0.9% Medicare surtax applies on earnings above $200,000 (single filer) or $250,000 (married filing jointly). You can deduct half of the SE tax amount from your gross income on your personal return.
Do I have to pay quarterly estimated taxes as an LLC owner?
Yes, in most cases. LLC income is not subject to withholding. If you expect to owe more than $1,000 in federal tax for the year, the IRS requires quarterly estimated tax payments. Missing these payments results in underpayment penalties even if you pay the full amount by the April filing deadline.
What tax forms does an LLC file?
A single-member LLC files Schedule C and Schedule SE attached to personal Form 1040. A multi-member LLC files Form 1065 (partnership return) by March 15 and issues K-1s to all members. An LLC with an S-Corp election files Form 1120-S by March 15. State tax filings vary by state.
What are the tax benefits of forming an LLC?
The main tax benefits include: pass-through taxation avoiding double taxation, the ability to deduct business expenses from gross income, the option to elect S-Corp taxation to reduce self-employment tax once income is high enough, deductibility of health insurance premiums, and access to self-employed retirement plans with high contribution limits. These benefits are available to other business structures too, but the LLC combines them with strong liability protection and flexible structure.
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