Introduction: Which States Require an LLC Return?
Today, forming an LLC, or Limited Liability Company, makes a lot of sense for many entrepreneurs and business owners due to the flexible tax structure and added liability protection. However, LLC formation comes with additional ongoing federal and state compliance requirements, and these can differ significantly from state to state.
At a federal level, all LLCs are required to file tax returns with the IRS based on their classification – whether they are a sole proprietorship, partnership, or S-corp. The same goes for LLC filings at the state level. Every U.S state has its own set of regulations regarding annual reports and state tax returns, as well as franchise taxes. Some states are more forgiving, while others are more stringent, imposing requirements regardless of the LLCs activity level or income.
LLC State Tax Filing vs. Filing Annual Reports
Before explaining what each state requires, it is good to know the difference between an annual report and a state tax return or franchise tax filing.
Annual Report
An annual or biennial report is an information based document confirming the LLC name, principal office, the registered agent, and other necessary details. There is no tax to be calculated on this report, however, there is a filing fee ranging from 10 to 300.
State Tax Return / Franchise Tax
A state tax return or franchise tax is considered to be more than just a financial filing. It may also require a tax payment dependent on the following:
- Net income.
- Gross receipts.
- Capital held.
- A flat annual fee.
In many states, both the annual report and the state tax filing are necessary, for example Delaware charges a flat franchise tax, even if no business activity happened.
State Requirements For LLC Return or Franchise Tax
Let’s discuss states that have more significant filing or payment obligations for the LLC.
California
- California requires a minimum franchise tax payment of $800 per year, even during zero income periods.
- Furthermore, if the LLC’s gross receipts are above $250,000, an additional tiered fee is also required.
Texas
For Texas, LLCs must all file an annual franchise tax report, even if no payment is owed. The tax is determined by an LLC’s gross receipts. However, LLCs under the revenue threshold of $2.47 million do not owe anything, but must file to avoid penalties.
New York
In New York, LLCs must submit a Biennial Statement every two years. Moreover, LLCs are mandated to fulfill a publication requirement during its formation by announcing formation in two local newspapers. Depending on the classification, LLCs may be subject to Form IT-204 (partnership) or Form CT-3-S (S-corp election) filing.
Delaware
Delaware charges all LLCs an annual franchise tax of $300, irrespective of income or operations. There’s no annual report unless the LLC opts for corporation status.
Tennessee
Lastly, Tennessee imposes both franchise and excise taxes on LLCs. The franchise tax is set at 0.25% of net worth, with a minimum of $100, while the excise tax sits at 6.5% on net earnings.
Illinois
Finally, in Illinois, an annual report is mandated and an annual filing fee of $75 is set to be implemented in 2025. Depending on the tax status, the LLC may also be required to file an Illinois income tax return either on Form IL-1065 or IL-1120-ST.
States That Do Not Require Annual Reports for LLCs
Filing for an LLC can feel overwhelming at times, especially if you don’t know what paperwork you need to complete. The good news is, some states don’t need an annual report or a biennial report, at all.
- Arizona
- Missouri
- New Mexico
An LLC will not need to file the narrative reports or pay the associated fees. That said, some states will hold you accountable for something, like New Mexico. In Arizona, an annual report is not required. However, businesses within certain sectors may be subject to a transaction privilege tax.
Does Every LLC Have to File a Tax Return?
No, not all LLCs are created equal, but taxes will need to be filed. Every LLC is required to file for taxes on a yearly basis. Even if you have not participated in business activities throughout the year.
Here’s how it breaks down:
- Single-Member LLCs (SMLLCs):
- Owners are treated as disregarded parties unless a corporate tax election is made.
- Owners report business income and expenses on Schedule C (Form 1040).
- Multi-Member LLCs:
- Treated as a partnership unless election is made.
- Must file Form 1065 and issue Schedule K-1s to each member.
- LLCs Electing S-Corp Tax Status:
- Must file Form 1120S.
- Still required to issue K-1s and file related state corporate forms if applicable.
At the state level, most states align with the federal classification but add their own forms, taxes, or additional filing requirements. For example, even an SMLLC has to file Form 568 in California.
What Is the New IRS Reporting Requirement for LLCs?
Under the Corporate Transparency Act (CTA), starting January 1, 2024, most LLCs will have to report Beneficial Ownership Information (BOI) to FinCEN (Financial Crimes Enforcement Network).
Key Details:
This applies to most domestic and foreign LLCs unless they fall under an exemption—like large operating companies with more than 20 full-time staff.
LLCs will have to report information for individuals who own at least 25% of the company or who have significant control over it.
Reporting deadlines:
- LLCs created before 2024: Deadline is January 1, 2025.
- LLCs created in 2024: Deadline is 90 days post-establishment.
- LLCs formed in 2025 and beyond: 30 days post-establishment.
- Penalties: Not reporting may incur $500 daily fees and possible criminal charges.
Do I Need an LLC in Multiple States?
If your LLC has employees, property, or customers in other states, it is considered to have multi-state operations. In that case, you may need to register as a foreign LLC in each state the business is operating in.
Foreign Registration Means:
- Submitting a certificate of authority to the Secretary of State in the new jurisdiction.
- Paying the registration fee along with any other designated annual fees.
- Filing annual reports or franchise taxes irrespective of the low volume of business activity.
For instance:
An LLC organized in New York and doing business in California will likely have to register in CA and pay the $800 LLC annual tax.
An online store based in Texas with warehouses located in Illinois may need to register in both states.
To avoid paying tax in one state and being penalized for skipped tax filing in another, or other filing misconvergence, speak to a business lawyer or tax consultant first before expanding operations to other states.
Conclusion: Remain Compliant Across States
LLC compliance extends beyond federal taxes and includes a blend of state reports, taxes, and registrations. Operating in one state or many will still require each having its own unique rules to abide by.
Being up to date with:
- Filing and paying annual reports.
- Franchise taxes.
- State income tax returns.
Reporting of business ownership interest can spare you from facing penalties, administrative dissolution, or the removal of liability protections.
File with a tax and business professional to guarantee you aren’t missing deadlines or filing the needed documents in the wrong formats. There is a need for balance in compliance and tax-friendly strategy in operations across states with multiple jurisdictions.
If you are not sure about these implications, reach out to us today. Dimov Tax stands ready to present professional support.