Starting a Limited Liability Company (LLC) is a popular choice for entrepreneurs because of its flexibility and protection. But when it comes to taxes, things can get confusing if you’re not familiar with how LLC taxes work. At Kruse & Crawford, based in Cincinnati, OH, we help LLC owners simplify their tax process and make sure they stay on top of their tax obligations. In this guide, we’ll break down what you need to know about LLC business taxes so you can focus on growing your business without worrying about tax season.
1. LLCs and Pass-Through Taxation
One of the biggest perks of an LLC is that it’s considered a “pass-through entity.” This means the LLC itself doesn’t pay federal income taxes. Instead, the profits and losses “pass through” to the owners (also known as members), who report them on their personal tax returns. For single-member LLCs, the owner reports the business’s income on their individual tax return. Multi-member LLCs file a partnership return, but the income or loss still passes through to the individual members.
2. Self-Employment Taxes
If you’re an LLC owner, you’re likely responsible for self-employment taxes. These taxes cover Social Security and Medicare, which would usually be withheld by an employer. For LLC members, the self-employment tax rate is 15.3%, which includes both the employer and employee portions of Social Security and Medicare.
3. Estimated Taxes
LLC members are responsible for paying estimated taxes on their business income throughout the year. Instead of waiting until tax season to pay everything at once, you’ll need to make quarterly tax payments to the IRS (and possibly your state). Estimated taxes are due in April, June, September, and January. Missing these payments can result in penalties, so it’s essential to keep track of your income and make timely payments.
4. Deducting Business Expenses
Like other businesses, LLCs can deduct various expenses from their taxable income. Some common business deductions include:
- Office supplies and equipment
- Business-related travel and meals
- Marketing and advertising expenses
- Health insurance premiums (for certain members)
- Home office deduction (if applicable)
Keeping detailed records of your expenses is crucial for maximizing your deductions and reducing your overall tax liability.
5. LLC Taxes for Employers
If your LLC has employees, you’ll also be responsible for payroll taxes, which include withholding federal income taxes, Social Security, and Medicare from employee wages. Additionally, you’ll pay federal unemployment taxes (FUTA) and possibly state unemployment taxes. Managing payroll taxes can be complicated, but a professional accountant can ensure you stay compliant and avoid penalties.
6. State and Local Taxes
In addition to federal taxes, your LLC may be subject to state and local taxes. These taxes vary depending on where your business is located. Ohio, for instance, requires LLCs to pay the Commercial Activity Tax (CAT) if their gross receipts exceed a certain threshold. It’s important to check your state’s requirements to avoid any surprises.
7. Filing Your LLC Taxes
Depending on your LLC’s structure, the IRS requires different forms for tax filing:
- Single-member LLCs: Report business income and expenses on Schedule C of your personal tax return (Form 1040).
- Multi-member LLCs: File a Form 1065 partnership return and provide Schedule K-1 to each member, showing their share of the income or loss.
Additionally, you may need to file state-specific tax forms, depending on your location.
8. Consider Hiring a Professional
Taxes can be complicated, especially as your business grows. Working with a professional accountant ensures your taxes are filed correctly and that you’re taking advantage of every deduction and credit available. At Kruse & Crawford, we specialize in LLC business taxes and can help you navigate the complexities of tax season with ease.
LLC taxes may seem overwhelming at first, but with the right understanding and guidance, you can ensure your business stays compliant while minimizing your tax liability. Whether you need help with filing, tax planning, or managing your LLC’s payroll, Kruse & Crawford is here to help. We provide expert accounting services for LLCs in Cincinnati, OH, and beyond, so you can focus on growing your business while we handle the numbers.
Ready to simplify your LLC taxes? Contact Kruse & Crawford in Cincinnati, OH today for professional tax assistance tailored to your business.
Need help with your LLC taxes? Reach out to Kruse & Crawford in Cincinnati, OH, and let us handle your tax planning and filing so you can focus on what matters—running your business!
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