Do LLCs pay taxes?

The four ways an LLC can be taxed

1. Disregarded entity (default for single-member LLCs). The IRS ignores the LLC for tax purposes. The owner reports business income/expenses on Schedule C of their personal Form 1040. The LLC files no separate federal return.
2. Partnership (default for multi-member LLCs). The LLC files Form 1065 and issues a K-1 to each owner. The K-1 amounts flow onto each owner's personal return.
3. S-corporation (by election, Form 2553). Profits still pass through, but owners can split pay between W-2 salary and distributions — saving self-employment tax. The LLC files Form 1120-S.
4. C-corporation (by election, Form 8832). The LLC pays 21% federal corporate tax on profits, and owners pay again when they take dividends. Rare for small LLCs; mainly useful for raising VC. The LLC files Form 1120.

You don't pick a tax classification when you file with the state — formation and federal tax treatment are separate steps. By default the IRS slots you into disregarded-entity or partnership based on member count, and you have to file Form 2553 or 8832 if you want anything else. Most LLCs stay on the default; an election should follow a clear math case, not a hunch.

Filing business taxes for your LLC for the first time

If this is your LLC's first tax year, work through these in order:

1. Confirm your LLC's tax classification. Default unless you filed Form 2553 or 8832.
2. Get an EIN if you haven't. Required to file as a partnership, S-corp, or C-corp; recommended even for single-member LLCs.
3. Separate business and personal money. Open a business bank account, route every LLC income/expense through it.
4. Categorize the year's transactions. Bookkeeping software (Xero, QuickBooks, Wave) or a CPA.
5. Pick the right form: Schedule C (single-member), 1065 (partnership), 1120-S (S-corp), 1120 (C-corp).
6. File state returns and any state franchise tax. Pay quarterly estimates going forward if you owe >$1,000.

Self-employment tax (and how to cut it)

The single biggest tax line for most LLC owners isn't income tax — it's self-employment tax. SE tax is 15.3% on net earnings: 12.4% Social Security up to the wage base (~$176,100 for 2026) plus 2.9% Medicare on everything, with another 0.9% Medicare surcharge on income above $200,000 single / $250,000 married.

Two legal ways to reduce SE tax:

• Elect S-corp. Pay yourself a reasonable W-2 salary (SE/payroll tax applies) and take the rest as distributions (no SE tax). Usually pencils out at ~$60–80k+ of profit.
• Maximize retirement contributions. Solo 401(k) and SEP-IRA contributions reduce income tax but not SE tax — still worth it for the income-tax shelter.

Quarterly estimated payments

Pass-through LLCs don't have an employer withholding tax for you, so the IRS expects estimated payments four times a year — April 15, June 15, September 15, and January 15. Miss them and you owe an underpayment penalty (currently ~8% annualized).

Safe harbor: pay either (a) 100% of last year's tax (110% if AGI > $150k) or (b) 90% of this year's tax in even quarterly chunks. Most LLC owners use (a) because it's known on April 15 of the current year.

State income tax and franchise tax

Two different things, both can bite:

• State income tax follows federal pass-through — your share of LLC profit lands on your state return. No state income tax in AK, FL, NV, NH, SD, TN, TX, WA, WY.
• State franchise/annual tax is owed by the LLC itself, regardless of profit. Notable ones: California $800/yr minimum, Delaware $300/yr flat, Tennessee minimum $100, Texas franchise tax (no tax due at or below $2.65M annualized revenue for 2026 reports — a Public Information Report is still required).

If your LLC is formed in one state and does business in another, you owe both: home-state franchise tax plus foreign qualification filings and tax in the working state. See our foreign qualification guide.

All the deadlines in one place

• March 15: Form 1065 (partnerships) and Form 1120-S (S-corps). K-1s due to owners.
• April 15: Form 1040 with Schedule C (single-member LLCs); Form 1120 (calendar-year C-corps).
• April 15 / June 15 / Sep 15 / Jan 15: federal quarterly estimated payments.
• Jan 31: 1099-NEC to contractors paid $600+ during the prior year; W-2s to employees.
• State franchise tax: varies — CA 15th day of 4th month, DE June 1, TX May 15.

Deductions LLCs leave on the table

Most LLC owners over-pay tax by missing legitimate deductions. The usual suspects:

• Home office (simplified $5/sq ft up to 300 sq ft, or actual-expense method).
• Health insurance for self-employed owners — above-the-line deduction.
• Retirement contributions — Solo 401(k) up to $69,000 (2026), SEP-IRA up to 25% of compensation.
• Vehicle — mileage method ($0.67/mi for 2026) or actual expenses.
• Section 179 / bonus depreciation on equipment placed in service this year.
• QBI deduction — up to 20% of qualified business income for pass-throughs, subject to income limits and SSTB rules.

Non-US owner? Different rules

A foreign-owned single-member LLC is still disregarded for federal income tax — but it must file Form 5472 with a pro-forma Form 1120 each year disclosing related-party transactions. Penalty for missing it: $25,000 per year. Multi-member LLCs with foreign partners file Form 1065 plus withholding forms 8804/8805 on US-effectively-connected income.

Common mistakes

• Skipping quarterly estimated payments

  April surprises plus underpayment penalty. If you owe >$1k for the year, pay quarterly using safe harbor.

• Commingling personal and business funds

  Wrecks both your deductions and your liability shield. Get a business bank account day one.

• Filing 1065 late

  $235 per partner per month, even with $0 of profit. File an extension if you're not ready — it's free.

• Electing S-corp too early

  Below ~$60–80k profit per active owner, payroll overhead eats the savings.

• Forgetting Form 5472

  Foreign-owned LLC, no filing = $25k penalty. Set a calendar reminder.

Note: this is general information, not tax advice. For your specific situation talk to a US CPA — especially if you're a non-US founder, your LLC owns real estate, or you've earned more than $50k.