Do I file my LLC and personal taxes together?

Do I file my LLC and personal taxes together?

Amy Beardsley
By Amy Beardsley
Mar 28, 2024
1 min read

Many small business owners ask, “Do I file my LLC and personal taxes together?” But the question you should be asking is how to optimize your tax position and avoid issues with Uncle Sam.

The choice to file LLC and personal taxes separately requires clarity on best practices and legal requirements. Before taking action, it’s best to consult with tax and legal professionals about what best for your business and personal finances.

Jump ahead to learn more about:

Understand your LLC tax classification

You know a limited liability company (LLC) can help protect your business. But one of your most significant decisions is its tax classification.

The Internal Revenue Service (IRS) allows LLCs the flexibility to choose how they want to be taxed, which directly influences your business’s tax obligations and how to file your return.

When tax season rolls around, and you’re wondering if you can file your LLC and personal taxes separately, the structure of your LLC is often the deciding factor. It also determines how you pay yourself from your LLC.

Default tax classifications

Owners of an LLC are called members. The laws and costs of setting up an LLC depend on the state where your business operates.

The IRS classifies LLCs one of two ways. By default, the IRS treats single-member LLCs as an extension of its owner. This is known as a “disregarded entity,” which means the IRS considers you and the LLC to be one and the same from a tax perspective.

If you’re part of a multi-member LLC, the IRS classifies it as a partnership. Partnerships aren’t taxed directly. Instead, each member reports their share of the profits and losses on their individual tax returns.

Electing corporate tax status

As an LLC, you can choose to be taxed as either a C Corporation or an S Corporation. Electing a corporate tax status might provide an opportunity for the business and owner to have distinctly separate taxes.

  • C Corporation: C-corps are taxed separately from their owner. Your business pays taxes on its profits at the corporate rate, and then dividends distributed to owners get taxed again on their personal tax return. This is called double taxation.
  • S Corporations: Electing S-corp status combines the legal benefits of a corporation structure with the tax benefits of a pass-through entity. It avoids double taxation on corporate income but requires businesses to meet specific requirements.

While a disregarded entity is the simplest and most common tax classification for single-member LLCs, a C-corp or S-corp can have advantages in some situations.

For single-member LLCs and multi-member LLCs treated as partnerships, owners integrate their portion of the company’s profits and losses into their personal tax returns.

S-corp status has a similar situation to that of a partnership, where the owner reports only their share of the business’s profits and losses. On the other hand, as a C-corp, the owners only pay personal income taxes on the dividends from the LLC.

How to file taxes for a single-member LLC

Filing taxes as a single-member LLC is relatively straightforward. Because the IRS classifies it as a disregarded entity, the LLC isn’t separate from its owner, which simplifies the tax filing processes considerably.

  • Report income and expenses: Report your business income and expenses on your personal income tax filing using a Schedule C (Profit or Loss from Business) form. Attach this to your individual return (Form 1040).
  • Self-employment taxes: Income from your LLC is subject to self-employment taxes. It covers Social Security and Medicare taxes and is calculated on your net earnings from the LLC.
  • Deducting business expenses: Business tax deductions are a perk of owning a single-member LLC. They include a range of expenses such as home office bills and supplies, travel, and other necessary costs you pay to operate the business.
  • Quarterly estimated tax payments: If your LLC is profitable, you may need to make quarterly estimated tax payments throughout the year to avoid penalties.

Keep clear and separate records for your business transactions. With proper bookkeeping, you’ll have more accurate reporting to help maximize potential tax deductions.

How to file taxes for a multi-member LLC

Pay attention to these unique filing requirements if you’re the owner of a multi-member LLC wondering if you can file business and personal taxes separately:

  • File an informational return: The LLC files an informational return (Form 1065). It details the LLC’s financial activities, including income, deductions and losses, but doesn’t calculate tax liability.
  • Personal tax returns: Each member of the LLC reports their share of profit and loss using Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.) on their personal tax returns. These earnings are subject to self-employment taxes.
  • Quarterly estimated tax payments: Like single-member LLCs, multi-member LLCs may need to pay estimated tax payments every quarter. This is especially important if you expect to owe $1,000 or more when filing your return.

Records and regulations get more complex for members of a partnership. Enlist the help of a professional for tax advice specific to your situation and to help you find ways to lower taxable income.

LLC electing corporate tax status

Electing corporate tax status is a tactical choice for an LLC. Your tax obligations can look different depending on whether you adopt C-corp or S-corp status. Here’s a breakdown of what you’ll file with the IRS.

LLC tax filingFile Form 1120 to report income, deductions, and credits. Income tax liability, paid at the corporate rate, is calculated using this form.File Form 1120S. No federal tax is paid at the corporate level because income, gains, losses, deductions, and credits pass through to the owner.
Personal tax filingReport and pay taxes on dividends received from the LLC on your personal tax return.Report your share of the corporation’s income (or loss) on your personal tax return using Form K-1. Your individual income tax rate determines tax liability.

4 tips to optimize LLC tax filing

It’s easy to stumble along the way when navigating the ins and outs of filing taxes for an LLC. These tips can help to minimize error along the way:

  1. Keep personal and business finances separate. This can lead to confusion and errors in tax filings. Always use a dedicated business account for all business transactions.
  2. Take advantage of business tax deductions. Why pay more tax than necessary? Track and write off home office expenses, travel costs and business insurance.
  3. Set money aside to pay your taxes. You can avoid a financial crunch at tax time by regularly setting aside a portion of your income to cover your tax liabilities.
  4. Don’t misclassify employees and contractors. Learn the difference between employees and independent contractors in your state and classify them correctly to avoid significant tax and legal consequences.
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NEXT Insurance does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors for personalized guidance.

Amy Beardsley
About the author

Amy Beardsley, insurance expert and contributing writer at NEXT Insurance, is a content marketing writer who specializes in small business coverage. Leveraging her background in the legal field, Amy brings a deep understanding of laws, regulations, and compliance requirements to her work. As a content marketing writer since 2016, she has contributed to publications like Legal & General, Berkshire Hathaway Specialty Insurance, Insurify, and NerdWallet. Her work has also appeared in CNBC, Kiplinger, and US News. When she’s not writing, Amy enjoys playing cards with her family and experimenting with new recipes.

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