LLCs Have to Submit Tax Return Every Year
Yes, most LLCs must file a tax return annually, even if the business at crunch time didn’t make a dime or stay active that year. What you actually have to file, though, comes down to how LLCs are taxed and the rules in the state where you do business.
Federal Tax Rules
When the IRS looks at LLCs, it sorts them into a few buckets based on how many owners there are:
- Single-Member LLC (SMLLC): Because the IRS usually treats a single-member LLC like it doesn’t exist, the business’s money in and money out goes straight onto the owner’s Form 1040, using a special section called Schedule C. If the business didn’t make money, you can still need to file the return to keep the IRS in the loop about what you did—or didn’t do.
- Multi-Member LLC: If your LLC has more than one owner, the IRS sees it as a partnership. This means you have to file Form 1065, the Return of Partnership Income, each year. You’ll also give each owner a Schedule K-1, which notes how much of the business’s gains or losses goes to them—again, even if nothing at all happened in the business that year.
LLC Electing S Corporation Status
If an LLC chooses to be taxed as an S corporation by submitting Form 2553, it must then complete Form 1120S every year. This form is needed even when there’s no income to report, and every owner will get a Schedule K-1 that shows their share of income, deductions, and credits.
State Filing Requirements
On top of federal rules, most states ask LLCs to file:
- Annual state income tax returns that follow the LLC’s federal classification.
- Franchise taxes or minimum fees no matter how much money the LLC makes—for example, California charges an $800 annual LLC tax.
- Annual reports to keep the LLC in good standing.
Some states, like Texas, call for a franchise tax report even when the tax is zero. Others avoid requiring a return altogether if the LLC was inactive, but this can change from one place to another.
Conclusion
Filing an LLC tax return each year is usually a must at the federal level and at most state levels too. Missing a return— even when there’s no income— can lead to fines, interest charges, or losing good standing. If you’re not sure what to do, Dimov Tax is ready to present expert assistance. Reach out to our dedicated team today for full compliance.