How to Prepare for an LLC Tax Return

By Larissa Bodniowycz, J.D.

How to Prepare for an LLC Tax Return

By Larissa Bodniowycz, J.D.

Preparing to file a tax return for your limited liability company (LLC) can feel daunting, but with a little preparation, it can be painless. Follow these steps to prepare your LLC's tax return.

Smiling businessman using a laptop and doing paperwork

1. Collect business records.

If you have an LLC, what you do during the year has a significant impact on the difficulty of filing your LLC's tax return. To avoid a headache, keep detailed business and financial records throughout the year. Do not wait until tax time to start compiling your LLC's financial information.

You need to prepare and, at tax time, gather all reports and records related to:

  • All income including gross receipts, business account interest, and other income
  • Cost of goods sold including inventory, materials, and supplies
  • All expenses including advertising, transportation and travel, internet and phone, business insurance, professional, office supply, wages, rent or in-home office expenses, etc.
  • Capital account balances—the amount of money, property, and services each member has contributed to the company less any withdrawals
  • Profit and loss allocations reflecting each member's share of your LLC's profits and losses
  • Your LLC's tax employer identification number (EIN)

2. Review your LLC's tax classification.

The type of return you need to file for your LLC depends on the tax classification you elected for your LLC. The Internal Revenue Service (IRS) does not recognize LLCs for tax purposes, you must choose to be treated as one of the following: a disregarded entity, a partnership, an S corporation, or a C corporation.

If you have filed taxes previously, you can review your prior return to determine how your LLC is classified for tax purposes. If this is your first year filing, by default, your LLC will be taxed as a disregarded entity for a single-member LLC or a partnership for a multiple-member LLC. You can deviate from this default rule by electing corporate tax status with the IRS. Your accountant or tax attorney can help you file the paperwork for the election.

3. Obtain last year's tax return.

If you have filed taxes previously, obtain last year's tax return. In addition to reminding you about your LLC's tax status, it contains key information about carryover amounts, depreciation, and other necessary information.

4. Prepare and file your tax return and supporting documentation.

The tax return forms an LLC must file vary by tax classification. Here are the necessary tax returns to file for each LLC type and tax status.

Single-Member LLC

If your LLC only has one member, it is treated as a disregarded entity for tax purposes unless you elected otherwise. All of your LLC's income is attributed to you as the single member, so you need to report all of your LLC's income on U.S. Individual Income Tax Return (Form 1040).

Along with Form 1040, you need to file Profit or Loss From Business (Sole Proprietorship) (Form 1040, Schedule C) to report business profits or losses. You must also pay self-employment taxes by filing Self-Employment Tax (Form 1040, Schedule SE). The LLC itself does not need to submit a return.

Multiple-Member LLC Taxed as a Partnership

If your LLC has multiple members, it is treated as a partnership unless you elect otherwise. As with a single-member LLC, the LLC itself does not need to submit a return. Instead, the LLC needs to prepare and file Partner's Share of Income, Deductions, Credits, etc. (Form 1065, Schedule K-1), an informational document reporting your LLC's income, deductions, gains, and losses.

You must also provide copies of Form 1065, Schedule K-1 to each member. Each member then reports his share of your LLC's income on his individual return and each member may additionally be liable for self-employment taxes.

Multiple-Member LLC Taxed as an S Corporation

If your LLC qualifies for S corporation status and you elect it, your LLC itself does not need to file a return and, with a few exceptions, is not taxed. Instead, your LLC must file U.S. Income Tax Return for an S Corporation (Form 1120S), an informational document reporting income, deductions, profits, losses, and tax credits.

You must also provide each shareholder with Form 1065, Schedule K-1. Members report income they received from the LLC on their individual returns.

Multiple-Member LLC Taxed as a C Corporation

If your LLC elected C corporation status, it must file U.S. Corporation Income Tax Return (Form 1120). The LLC's income is taxed according to applicable corporate tax rates. Members are also taxed on their individual returns on any income they received from the LLC that year.

You can complete your LLC's tax return yourself or by hiring a business attorney or a legal service provider with tax experience to do it for you. Working with an online service provider or attorney makes the process much less of a headache.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.