Filing Business Taxes for an LLC for the First Time

As a new business owner, filing business taxes for an LLC for the first time can be overwhelming. 

Filing taxes for your business means you’ll have to include information about your income, expenses, assets and depreciation, payroll, and more, on top of everything else on your plate. And then there’s figuring out how to reduce your tax bill, like making sure you’re claiming any tax deductions you’re eligible for.

As you can see, preparation is key. Not only will planning ahead make filing more efficient, but it’ll help you ensure you have answers to your pressing questions ahead of time.

Keep reading to learn everything you need to know to simplify your LLC taxes as a new business owner.

Key takeaways

• LLC taxation is based on the tax classification of your business
• Detailed record-keeping is a key part of preparing to file LLC taxes
• The business tax forms you use to file your taxes will vary depending on your LLC classification
• Common mistakes include missing deadlines, incorrectly reporting income, and poor record-keeping
• You can prepare for LLC taxes throughout the year by keeping detailed records and paying estimated quarterly taxes

Understanding LLC Taxation

Before you can file taxes as an LLC, your LLC must be classified with the IRS. Your tax classification will determine how your LLC is taxed, but you’ll receive the same limited liability protection either way.

Before you can file taxes as an LLC, your LLC must be classified with the IRS. Your tax classification will determine how your LLC is taxed, but you’ll receive the same limited liability protection either way.

Tax classification options

Every LLC has a classification for tax purposes. LLCs with different classifications are taxed differently, which means your classification determines the tax forms you have to file and how your business income is reported.

Single-member LLCs have a single owner. As the owner of a single-member LLC, your business will be taxed as a sole proprietorship. Multi-member LLCs have multiple owners and are treated as partnerships by default.

If you’re filing as a single-member LLC, you’ll report profits and losses on Schedule C of Form 1040. You don’t need to file a separate tax return for a single-member LLC. For multi-member LLCs, each member must report their share of profits on their personal tax return.

Multi-member LLC members use Schedule E to report their share of profits for tax purposes. Each member must take the amount from their Schedule K-1 and report it on Schedule E of Form 1040.

Whether you’re a single-member LLC or multi-member LLC, you can use Form 8832 to elect to be taxed as an S-Corp or C-Corp. If you elect corporate taxation, you’ll need to file a separate tax return for your LLC.

C-Corps are subject to double taxation, which means the C-Corp files a tax return and pays a flat tax rate of 21% on profits.

S-Corps are pass-through entities, which means profits and losses are passed to individual shareholders who report those profits and losses on their personal tax returns.

Tax responsibilities

As a first-time business owner, it’s important to understand your federal and state tax obligations to make sure you’re paying the taxes you owe each year.

The process of filing your taxes will vary depending on the tax classification of your LLC. However, your LLC’s profits and losses must be reported on either a personal tax return or a corporate tax return.

As a business owner, it’s your job to keep thorough records. Keeping detailed records makes it easy to file your taxes each year, and accurate records help you reduce the risk of audits and inaccuracies.

4 Steps for filing your LLC

When you’re filing business taxes for an LLC for the first time, it’s helpful to break the process down into individual steps. Here’s what you need to do to prepare and file your LLC taxes.

1. Gather necessary documents

Start by making sure you have all the documents you need to file your taxes. Before you file your taxes, you’ll need records for:

• Income
• Expenses
• Assets and depreciation
• Payroll

Income records may include cash register receipts, invoices you sent to clients, and 1099-NEC forms if you were paid more than $600 as an independent contractor. Your income records may vary based on the nature of your business and how you accept payments.

Expense records include canceled checks for vendor payments, credit card statements, invoices for purchases, and bank statements. Again, your expense records may vary depending on your business activities.

For assets, you want to keep records of any assets you purchased, how they were used, the date they were sold or disposed of, and the final sale price.

Your payroll records may include the W-2s you send your employees, your state payroll tax return, complete pay records for each employee, or your quarterly or annual payroll tax returns.

It may also be helpful to gather any other financial documents that might be relevant and can help you ensure you have the most accurate return.

2. Complete the correct tax return forms

There are several business tax forms for different types of businesses, so you need to make sure you use the right forms for your business. Let’s take a closer look at some of the tax forms you might need as an LLC.

Single-member LLCs report income and expenses on Schedule C, which you can attach to Form 1040 when you file your personal taxes.

Multi-member LLCs start by filing Form 1065 and a Schedule K-1 for each member. When it’s time to file taxes, each member reports the amount from Schedule K-1 on their personal tax return.

If you elect to be taxed as a C-Corp, you’ll use Form 1120 to file your taxes. If you elect to be taxed as an S-Corp, you’ll need to file Form 1120-S.

3. Determine which deductions and credits you’ll claim

Before you file your taxes, it’s important to make sure you’re claiming any tax credits and deductions you might qualify for. Deductions and credits can help you save on your taxes, so you don’t want to miss them.

If you’re the sole owner of an LLC, you can deduct half of the self-employment tax you pay to save when you file your federal income tax return.

LLCs can also write off various business-related expenses, including:

• Legal and professional fees
• Travel expenses
• Advertising and promotion
• Business insurance

If you’re unsure which tax credits and deductions your LLC qualifies for, working with a tax expert may be the best way to make sure you’re maximizing your write-offs.

File your LLC taxes

Once you’ve sorted out all the details, it’s time to complete your tax return and file your taxes, which you can conveniently do online or by mail. The processing time is approximately the same regardless of which method you choose.

You can also use tax software to file your taxes. Tax software, like TurboTax, can make it easier to walk through the process— helping you catch errors in calculations, prompting you to discover credits and deductions, and more.

Working with a tax expert to file your small business taxes is an excellent option if you want to take filing taxes off your plate. A tax professional can work with you to learn more about your business and specific tax situation to help you maximize your tax savings and ensure you’re tax-compliant.

Once your tax return is completed—by whichever method you choose—you’ll pay your tax bill or receive a refund.

Common mistakes to avoid when filing business taxes for an LLC for the first time

When you file LLC taxes for the first time, there are some common mistakes to be aware of so you can avoid them:

Missed deadlines for filing and payments

The IRS has strict filing and payment deadlines that you have to meet to avoid penalties and interest. For example, personal tax returns must be filed by the April 15 deadline. Form 1065 must be filed by the March 15 deadline.

Don’t wait to learn about these deadlines the hard way; make sure you have them marked on your calendar.

Incorrectly reporting your income

When you’re filing business taxes for an LLC, providing accurate information helps you maximize your tax savings and reduce your risk of an audit. If you enter the wrong income amount on your tax return, you could miscalculate what you owe or even accidentally overpay.

Double-check all your information before you file to make sure it’s accurate. You should have your income records handy when you file, so it only takes a moment to make sure the numbers match up.

Failing to keep adequate records

With everything you have to keep track of as a business owner, it’s understandable that record-keeping can get lost in the fray. Setting up a system for tracking your spending, payments, and more can help you stay organized. 

If you do most of your business online and don’t have paper receipts, you can use a document management system to keep your records organized.

After filing

After you file business taxes for your LLC, it’s important to pay any taxes you owe in a timely manner. Late payments result in penalties and interest that make it harder to pay your taxes.

Including tax payments in your budget and making estimated payments can help you stay on track.

Preparing for filing year-round, whether that means keeping detailed income and expense records or making estimated quarterly tax payments, can help you ensure the process goes as smoothly as possible.

Working with a tax professional is one of the best ways to minimize your tax bill. With TurboTax Live Business, get unlimited expert help while you do your taxes, or let a tax expert file completely for you, start to finish. Get direct access to small business tax experts who are up to date with the latest federal, state and local taxes. Small business owners get access to unlimited, year-round advice and answers at no extra cost.