For federal income tax purposes, the IRS does not have a specific tax rate for LLCs (Limited Liability Companies) as a separate tax entity. Instead, the tax treatment of an LLC depends on how it is classified for tax purposes and the number of members it has.
Here’s a general overview…
- Single-Member LLC
- A single-member LLC is typically treated as a “disregarded entity” for federal tax purposes. This means that the LLC’s income and expenses are reported on the owner’s tax return (Form 1040), and the LLC itself does not pay federal income taxes. Instead, the owner pays income tax on the LLC’s profits at their tax rate, which is based on their total taxable income and may vary depending on their filing status and tax bracket.
- Multi-Member LLC
- A multi-member LLC is treated as a partnership for federal tax purposes by default. Like single-member LLCs, multi-member LLCs do not pay federal income taxes directly. Instead, the LLC files an informational tax return (Form 1065), reporting its income, expenses, deductions, and credits. Each member of the LLC receives a share of the profits or losses, which is reported on their tax returns. Members pay income tax on their share of the LLC’s profits at their tax rates.
- LLC Electing Corporate Taxation
- In some cases, an LLC may elect to be taxed as a corporation by filing Form 8832 with the IRS. If the LLC elects corporate taxation, it becomes a separate tax-paying entity, and its income is subject to corporate income tax rates. Corporate tax rates vary depending on the level of taxable income and range from 15% to 35% for federal purposes. Also, dividends distributed to shareholders are subject to individual income tax at the shareholder level.
Note that while the IRS does not have a specific tax rate for LLCs, owners of LLCs are subject to income tax on their share of the LLC’s profits at their tax rates, regardless of whether the LLC is a single-member or multi-member entity. Also, state and local taxes may also apply to LLC income, and tax rates can vary depending on the jurisdiction. Consulting with a tax professional or accountant can provide personalized guidance on tax planning and compliance for LLC owners.
