Year End Checklist for an LLC

By Phil M. Fowler

Operating a limited liability company requires the completion of certain tasks on an annual basis. Most of those tasks relate to reporting to government agencies including the IRS and state and local governments in which the LLC operates. While the checklist may appear tedious and, at times, overly burdensome, the annual obligations of an LLC are significantly less than the annual obligations of a corporation.

Federal Income Tax Return

An LLC may elect to be taxed as either a corporation or a partnership. The default rule is that the IRS will tax an LLC as a partnership, unless the LLC specifically requests taxation as a corporation. The key difference is that a corporation pays income taxes before distributing profits, which results in two layers of taxation, while a partnership is not a separate taxing entity so it does not pay any income taxes before distributing profits. In the case of corporate-style taxation, an LLC must file its own income tax return (Form 1120) with the IRS each year. However, in the case of partnership-style taxation, the LLC simply needs to file a Schedule K-1 (Form 1065), which allocates profits or losses to each of the LLC members.

State Income Tax Return

The LLC also needs to file an income tax return in any state in which the LLC conducted business during the year. It can be a tricky issue determining the states in which an LLC conducted business if the LLC engages in interstate sales or services. Generally, the LLC will need to file a state income tax return in any state in which the LLC performs services or provides goods. However, not all states impose an income tax. Texas, for example, does not impose a state income tax.

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Property and Other Local Taxes

An LLC also needs to pay its property taxes and other local taxes each year. If the LLC engages in activities that result in sale transactions taxable by local ordinance or state law, the LLC will need to file sales tax returns with the appropriate local and state agency. Additionally, the LLC needs to pay local property taxes. Most states and localities impose a property tax on all personal and real property owned by the LLC. In some counties, for example, the LLC must self-report all personal property, including such things as vehicles, equipment and office furniture. Also, if you have any local permits or licenses, you will probably need to renew those as well.

State and Local Registration

State laws generally require domestic LLCs, meaning LLCs formed in that state, to file annual reports with a state agency. The annual report is typically a simple form requiring only a few minutes to fill out. Most states impose an annual renewal fee on the LLC at the time the LLC files the annual report. Also, if your LLC operates in any state other than the state of organization, then your LLC will likely need to file annual registration renewal with each of those states. Again, each of those states will likely impose a filing fee.

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Illinois LLC Operating Agreement

References

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