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LLC Taxes: How an LLC Is Taxed
LLC taxes confuse many new owners because an LLC can be taxed in more than one way. Here is how LLC taxes work by default, when an LLC pays tax itself, what state taxes apply, and what owners outside the US need to file every year.
By default, an LLC does not pay federal income tax itself. A single-member LLC is a disregarded entity and a multi-member LLC is a partnership, so profit flows to the owners, who report it. An LLC can instead elect to be taxed as a corporation. For owners outside the US, a single-member LLC must file Form 5472 with a pro forma Form 1120 every year; whether any US income tax is due depends on how the business earns its income. LLCPronto files both forms for up to $60.
How Is an LLC Taxed?
| LLC type | Default federal tax | Main yearly IRS filing |
|---|---|---|
| Single-member, US owner | Disregarded: profit on the owner’s return | Owner’s personal return |
| Single-member, owner abroad | Disregarded | Form 5472 + pro forma Form 1120 |
| Multi-member LLC | Partnership: each member reports their share | Form 1065 partnership return |
| LLC electing C corp tax | Pays corporate income tax | Form 1120 |
| LLC electing S corp tax (US owners only) | Pass-through with salary rules | Form 1120-S |
Do LLCs Pay Taxes?
An LLC taxed by default does not pay federal income tax at company level. The tax is paid by the owners on their share of the profit. That is why LLCs are called pass-through businesses. An LLC that elects corporate tax treatment does pay tax itself.
Self-Employment Tax for US Owners
US owners who work in their LLC usually pay self-employment tax on their share of profit, which covers Social Security and Medicare. This is the tax an S corp election can reduce for profitable US owners. See LLC vs S corp. Owners who are not US residents generally do not pay US self-employment tax.
LLC Taxes for Owners Outside the US
A US LLC owned by someone who does not live in the US follows special rules:
- Form 5472 every year: a foreign-owned single-member LLC reports money moving between the LLC and its owner on Form 5472, attached to a pro forma Form 1120, even with no income
- Penalty: $25,000 for each Form 5472 that is missing or late
- US income tax: depends on whether income is effectively connected with a US trade or business; many service and online businesses run entirely from abroad owe none, but each case is different
- Platform tax forms: platforms usually ask for Form W-8BEN in the owner’s name for a single-member LLC
- Home country tax: your own country may tax your LLC profit, so check local rules
Our tax team, including M. Hassan, CPA, reviews how your LLC earns money and files the right forms.
State Taxes and Fees
Federal tax is only part of the picture. Depending on the state, an LLC may have a yearly report fee, a franchise tax or a minimum tax, and states charge sales tax when you sell taxable goods there. Some states, such as Wyoming and New Mexico, are known for low yearly costs. Compare states in how much an LLC costs and the best state for an LLC.
What Is the LLC Tax Rate?
There is no single LLC tax rate. In a default LLC, profit is taxed at the owners’ own rates. An LLC that elects C corp tax pays the federal corporate rate of 21% on its profit. State taxes come on top, depending on the state.
Choosing How Your LLC Is Taxed
| Option | Good for |
|---|---|
| Default (disregarded or partnership) | Most small and online businesses, and owners abroad |
| C corporation election | Businesses reinvesting profit, or raising investment |
| S corporation election | Profitable LLCs with only US citizen or resident owners |
LLC Tax Deadlines
Form 5472 and the pro forma Form 1120 are normally due by the 15th day of the fourth month after the tax year ends, which is April 15 for most LLCs. An extension can be filed. Partnership returns (Form 1065) are due a month earlier. File with us and we keep track of the deadline for you.
LLC Taxes: FAQs
How are LLCs taxed?
By default, a single-member LLC is a disregarded entity and a multi-member LLC is a partnership, so profit is taxed on the owners’ returns. An LLC can elect to be taxed as a corporation instead.
Do LLCs pay taxes?
A default LLC does not pay federal income tax itself; its owners do. An LLC that elects corporate tax pays tax at company level. State fees and taxes can apply either way.
Do non-US residents pay tax on a US LLC?
It depends on whether the income is connected with a US trade or business. Many online and service businesses run from abroad owe no US income tax, but they must still file Form 5472 and Form 1120 every year.
What is the LLC tax rate?
There is no single rate. Default LLC profit is taxed at the owners’ rates; an LLC taxed as a C corp pays the 21% federal corporate rate.
What tax forms does a foreign-owned LLC file?
A foreign-owned single-member LLC files Form 5472 attached to a pro forma Form 1120 every year. LLCPronto files both for up to $60.
What happens if I do not file Form 5472?
The IRS can charge a $25,000 penalty for each missing or late Form 5472.
Does an LLC with no income need to file taxes?
A foreign-owned single-member LLC must still file Form 5472 and the pro forma Form 1120, even with no income.
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Form 5472 and Form 1120 filed together for up to $60, before the deadline.
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