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.

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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.

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When Are Taxes Due for an LLC?
 

References

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Can an LLC File as a C Corp?

Once you form a limited liability company, or LLC, you can’t treat your business as a C corp unless you create a legal corporate entity for it. However, if you only want the LLC to file as a C corporation for tax purposes, the IRS allows for it, but the LLC must commit to comply with every corporate income tax rule for a minimum number of years.

How to File a Tax Return for an LLC

LLCs borrow tax forms from sole proprietorships and partnerships rather than using their own specialized forms. Single-member LLCs file taxes like an individual, using Form 1040, Schedule C to calculate business income. Multi-member LLCs use the form for partnerships to calculate their tax obligations for the year. An LLC can also elect to file as a C or S corporation, using the appropriate forms. You can file all forms online, making tax time more convenient for LLC members.

How to Dissolve a Corporation in New York With No Activity

Just as you must comply with filing regulations to form a corporation in New York, you must comply with final reporting requirements to dissolve your business. It makes no difference if there was little or no activity in the previous 12 months or even since start up. The New York Department of State does not recognize the dissolution of a corporation until the proper certificate is filed, the date of which is the date your corporation ceases to exist.

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