How to Pay Taxes as an LLC

How to pay taxes as an LLC, from quarterly estimates to Schedule C and K-1. A plain English guide to pass through taxes, self employment tax, and deadlines.

How LLC taxes work

Learning how to pay taxes as an LLC is not as hard as it sounds. The LLC itself usually pays no federal income tax. Instead, profits pass through to you, and you report them on your personal return. The tricky parts are self employment tax and quarterly estimated payments. This guide covers both, plus the forms and deadlines you need to know.

An LLC is a pass through entity by default. The company's profit flows to the owners, who pay tax at their personal rates. The LLC does not file a corporate tax return and does not pay corporate income tax. This avoids the double taxation that corporations face, where the company pays tax and then shareholders pay again on dividends.

The forms you file

The forms depend on how many owners you have. A single member LLC reports on Schedule C, which you attach to your personal Form 1040. A multi member LLC files Form 1065, the partnership return, and each member receives a Schedule K-1 showing their share of profit. You report that K-1 amount on your personal return. If you elected S corp status, the LLC files Form 1120-S instead.

Self employment tax

LLC owners pay self employment tax on their profits. The rate is about 15.3%, which covers the employee and employer shares of Social Security and Medicare. A W-2 employee splits this with their employer, but as an LLC owner you pay the whole thing. You can deduct half of it on your tax return. The self employment tax is separate from income tax and is calculated on Schedule SE.

Estimated quarterly taxes

Because no employer withholds taxes from your LLC income, you pay as you go with quarterly estimated payments. The IRS expects four payments a year, due April 15, June 15, September 15, and January 15 of the following year. Each payment covers roughly a quarter of your expected income tax plus self employment tax. You can use Form 1040-ES to calculate and pay, or pay online through the IRS website. If you underpay, you may owe interest and penalties.

A simple way to estimate is to take last year's tax bill, or your projected profit times your tax rate, and divide by four. Many owners set aside 25% to 30% of every payment they receive. That habit keeps the money ready when each quarterly deadline arrives.

State taxes

State taxes vary widely. Most states follow the federal pass through rules, so you report LLC income on your state return. Some states charge a separate LLC tax or franchise fee, which can be a flat amount or based on revenue. A few states, like California, charge a minimum annual LLC fee of $800. Check your state's revenue department for the exact requirements, and remember your annual report fee of $50 to $300 is separate from income tax.

If you sell physical goods or certain services, you may also need to collect sales tax. That means registering for a sales tax permit and filing returns, usually monthly or quarterly. The rules vary by state and by product, so check with your state's tax agency before you start charging customers.

Common tax mistakes

The most common mistake is skipping quarterly payments and hoping for the best. The second is mixing personal and business expenses, which makes bookkeeping a mess and can trigger an audit. The third is forgetting that self employment tax applies to all your profit, not just what you withdraw. Keep clean records, set aside 25% to 30% of each payment for taxes, and you will be in good shape. For help paying yourself, see our guide to paying yourself from an LLC.

Frequently Asked Questions

Does an LLC pay federal income tax?

No. The LLC is a pass through entity, so profits flow to the owners and are taxed on their personal returns. The LLC itself does not file a corporate tax return or pay corporate income tax.

When are quarterly estimated taxes due?

The four due dates are April 15, June 15, September 15, and January 15 of the following year. If a date falls on a weekend or holiday, the deadline moves to the next business day.

How much should I set aside for LLC taxes?

Most owners set aside 25% to 30% of each payment for income tax plus self employment tax. The exact amount depends on your profit and tax bracket, so an accountant can give you a precise number.

Do I need to file a separate tax return for my LLC?

A single member LLC does not file a separate return; you use Schedule C on your personal return. A multi member LLC files Form 1065 and gives each owner a Schedule K-1.

What is the self employment tax rate for LLC owners?

About 15.3% of your net profit, covering Social Security and Medicare. You can deduct half of it on your tax return, and it is calculated on Schedule SE.