Do I Need to File a Tax Return for LLC With No Activity?

By Jeff Franco J.D./M.A./M.B.A.

The Internal Revenue Service imposes separate tax return filing requirements on different types of business organizations. However, the tax filing rules that apply to a limited liability company, or LLC, depend on how the members choose to treat the business for federal income tax purposes. Some organizations must file a tax return during tax years when there is no business activity, while others must meet minimum taxable income requirements.

Corporations

If you designate the LLC as a corporation for tax purposes, you must file a corporate tax return each year, regardless of whether the business is active or inactive. The IRS requires you to report the inactivity on Form 1120 and file it no later than the fifteenth day in the third month after the close of the LLC’s tax year. If you are unable to file the return by the original due date, prepare a Form 7004 for an automatic six-month extension of time to file. If the LLC does not have taxable income for the year, you will not incur late-filing penalties or interest during the extension period.

Partnerships

Limited liability companies that you designate as a partnership for tax purposes must provide the IRS with an informational tax return on Form 1065 and a Schedule K-1 attachment for each LLC member. This filing requirement remains effective for any tax year the LLC has no business activity or income. When you prepare the return, you can simply enter zeroes for revenue and expenses. Unless you file Form 7004 for an automatic six-month extension of time to file, the IRS will impose an $89 -- current as of November 2010 -- per-partner penalty for each month you file the return after its due date. Schedule K-1 reports each member’s share of partnership profits and losses. The IRS will impose an additional penalty of $50 per month for each K-1 you fail to attach to the return by the due date.

Ready to start your LLC? Start an LLC Online Now

Disregarded Entities

If the LLC is disregarded for tax purposes, report all of the LLC’s business activity on a personal tax return by calculating each net profit or loss on the Schedule C attachment to IRS Form 1040. However, you need not file a Schedule C if the net taxable earnings for the business are $400 or less. Therefore, no tax reporting requirements exist for inactive LLCs. If the LLC does generate taxable income less than $400, include the amount on the first page of Form 1040 even though you do not prepare a Schedule C.

Tax Elections

If you are the member of an inactive LLC, you may be able to make an election to change the tax rules that apply to the business that reduce tax filing burdens in years of inactivity. By filing IRS Form 8832, you can change a disregarded entity to a corporation, a corporation to a disregarded entity or partnership, and a partnership to a corporation. However, you can only change an election once every 60 months.

Ready to start your LLC? Start an LLC Online Now
Can You File an LLC With Personal Taxes?

References

Related articles

Do I Owe a Penalty if I Don't File a Pennsylvania Corporation Tax Return?

Pennsylvania levies a corporate income tax on certain firms doing business in the state. At the time of publication, the state’s corporate tax rate is 9.99 percent of federal taxable income; non-profits, membership associations, business trusts and homeowners’ associations are exempt. By Pennsylvania law, any entity classified by the IRS as a corporation is subject to state income taxes.

Tax Advantage of an LLC

The Internal Revenue Service does not provide a specific set of federal income tax rules that apply solely to limited liability companies. Rather, the federal tax law automatically designates new single-member LLCs as sole proprietorships for tax purposes and disregards the legal business entity. An LLC that has more than one member receives automatic partnership designation for tax purposes.

LLC Profits and Disbursement Rules

Owners who invest in a limited liability company and become members obtain returns on their investments through appreciation in the value of the business and through the earnings and profits of the LLC. The members may receive periodic distributions of LLC profits throughout the year. However, if members agree, the LLC may retain all earnings and refrain from issuing a distribution.

LLCs, Corporations, Patents, Attorney Help

Related articles

When Are Taxes Due for an LLC?

The Internal Revenue Service requires all business taxpayers to pay income tax in full by the tax return’s filing ...

Net Operating Loss for a Sole Proprietorship

It isn’t uncommon for sole proprietors to report losses in some years, which are the result of incurring business ...

What Tax Forms Are Needed for an LLC?

Federal tax law does not provide specific rules that govern every limited liability company. Instead, the Internal ...

What Happens if a Corporation Is Late on Its W-2s?

For employees of a corporation, receiving W-2s on time is vital to completing tax returns before the filing deadline. ...

Browse by category
Ready to Begin? GET STARTED