LLC Taxes: The Complete Guide for Small Business Owners

An LLC is one of the most popular ways to run a small business in America — and LLC taxes are one of the most misunderstood when tax season arrives. Owners often assume the LLC itself “handles” their taxes, or that forming one magically lowers their tax bill.

The truth is more useful than either myth: an LLC is a legal wrapper, and you choose how it is taxed. That choice — along with a handful of elections and habits — decides whether you overpay the IRS by thousands of dollars a year or keep what you have earned.

This guide covers the 2026 rules in plain English: the four ways an LLC can be taxed, the S corporation election, how to pay yourself, which forms to file, estimated taxes, the 20% pass-through deduction and the deadlines that matter.

How LLCs Are Taxed: The Default Rules

Here is the single most important thing to understand: for federal tax purposes, the IRS does not have a tax category called “LLC”. A limited liability company is a creature of state law. When you form one, the IRS simply applies its default classification rules based on how many owners you have.

Single-member LLC: taxed as a sole proprietorship

If your LLC has one owner, the IRS treats it as a “disregarded entity” by default. That sounds dismissive, but it just means the business is invisible for income tax purposes: you report all profit and loss on Schedule C attached to your personal Form 1040.

You do not file a separate business tax return, and you do not need an EIN solely for income tax (though you will want one for banking, hiring, and credibility).

Practically speaking, a single-member LLC is taxed exactly like a sole proprietorship. The LLC gives you legal liability protection; it changes nothing about your tax bill on its own.

Multi-member LLC: taxed as a partnership

With two or more owners, the default is partnership taxation. The LLC files an information return, Form 1065, and each owner receives a Schedule K-1 showing their share of profit or loss. Each owner then reports that share on their personal return and pays tax on it — whether or not the cash was actually distributed.

That surprises many first-time partners: you can owe tax on money still sitting in the business bank account.

The Four Ways an LLC Can Be Taxed

Defaults are only the starting point. An LLC can elect a different tax treatment, which gives you four options in total:

• Disregarded entity (single owner). Simplest. One tax return, profit taxed once on Schedule C, but all net earnings are hit with self-employment tax.
• Partnership (multiple owners). Pass-through via Form 1065 and K-1s. Flexible profit splits, but partners generally pay self-employment tax on their share.
• S corporation (Form 2553 election). Still pass-through, but owners who work in the business take a salary (subject to payroll tax) and remaining profit flows through free of self-employment tax. Often the biggest tax saver for profitable LLCs.
• C corporation (Form 8832 election). The LLC pays its own 21% flat corporate tax. Double taxation on dividends, but it can make sense if you want to retain earnings in the business or pursue certain investors.

Most small service and product businesses live happily in the first three categories. The C corporation election is the odd one out for a typical small business — powerful in specific situations, but rarely the default answer.

Pass-Through Taxation, Explained Plainly

Three of the four options above share one trait: pass-through taxation. The business itself pays no income tax. Instead, profits “pass through” to the owners’ personal returns, where they are taxed once at individual rates.

Say your single-member LLC earns $90,000 of net profit in 2026. Here is exactly how that $90,000 is taxed, step by step:

1. The full $90,000 is reported as business profit on your Schedule C.
2. That profit flows onto your personal Form 1040 and is added to your other income.
3. As a rough illustration only: applying a flat 22% to the full $90,000 gives about $19,800 of income tax — but real marginal rates apply in bands to your total taxable income, so your actual figure will differ.
4. Self-employment tax applies on top of the income tax (more on that below).
5. It is all taxed in the year it is earned — pass-through income offers no corporate shelter to defer it.

Self-Employment Tax and Your LLC

This is where LLC owners feel the most pain — and where the S election earns its reputation. By default, an LLC owner’s net earnings are subject to self-employment tax of 15.3%: 12.4% for Social Security plus 2.9% for Medicare.

You pay it on 92.35% of your net earnings, and it kicks in once those earnings reach just $400 for the year.

For 2026, the Social Security portion applies to the first $184,500 of earnings; Medicare has no cap, and earnings above $200,000 ($250,000 for joint filers) attract an additional 0.9% Medicare tax. One consolation: you may deduct one-half of your self-employment tax as an adjustment to income, which slightly softens the blow.

On $90,000 of profit, self-employment tax alone is roughly $12,700. That is on top of income tax. It is the number that makes profitable LLC owners start asking about the S corporation.

How to calculate your SE tax in 5 steps

1. Multiply your net profit by 92.35%. Only this part counts — the IRS gives you a 7.65% break first.
2. Multiply the result by 15.3%. That is 12.4% for Social Security plus 2.9% for Medicare.
3. Check the $184,500 line. In 2026, the 12.4% Social Security part stops at $184,500 of earnings; the 2.9% Medicare part has no limit.
4. Add 0.9% on earnings over $200,000 ($250,000 joint). This extra Medicare tax only hits high earners.
5. Deduct half of the total on your personal return. It lowers your income tax — not the SE tax itself.

$90,000 profit → $90,000 × 92.35% = $83,115 → × 15.3% = about $12,700. Half (about $6,350) is deductible.

LLC tax rates at a glance

Tax	2026 rate	What it applies to
Self-employment tax	15.3% (12.4% + 2.9%)	92.35% of your net earnings
Social Security part	12.4% up to $184,500	Earnings above that skip this part
Medicare part	2.9%, no cap	All net earnings
Extra Medicare tax	+0.9%	Earnings over $200k single / $250k joint
Federal income tax	10%–37% (your bracket)	Pass-through profit on your personal return
C corporation tax	21% flat	Only if your LLC elects C corp status
State income tax	Varies — some states 0%	Your state’s rules

The S Corporation Election: When It Actually Saves Money

Electing S corporation status does not change your LLC’s legal structure — it only changes the tax treatment. As an S corp, you become an employee of your own company. You must pay yourself a reasonable salary, which is subject to payroll taxes, but the remaining profit passes through to you free of self-employment tax.

A realistic example: your LLC nets $120,000. As a disregarded entity, you pay self-employment tax on essentially all of it — about $17,000.

As an S corp paying yourself a reasonable $70,000 salary, payroll taxes apply to the $70,000 (roughly $10,700 combined employer/employee share, half of which the business deducts), while the remaining $50,000 of profit escapes the 15.3% levy entirely.

The saving is several thousand dollars a year — though you must subtract the cost of running payroll and filing the extra return (Form 1120-S).

Not every LLC can choose S corporation status. The IRS limits it to companies with no more than 100 owners, all of them US citizens or residents, and a single class of stock. One non-resident owner disqualifies the whole company.

Foreign owners face extra filings even without the S election. A single-member LLC owned by a non-resident must file Form 5472 each year, reporting transactions between the LLC and its owner.

• Salary first: working owners must pay themselves a reasonable W-2 salary before taking any distributions.
• The salary runs through payroll — income tax withholding plus Social Security and Medicare on both the employer and employee sides.
• Remaining profit comes out as distributions: still subject to income tax, but free of the 15.3% self-employment tax.
• Distributions must generally be pro-rata to ownership — no favouring one owner over another.

New to running payroll? Our self-employment tax and payroll guide walks through the setup.

The rough rule of thumb practitioners use: the S election starts to pay off when consistent net profit sits above about $60,000–$80,000 a year. Below that, payroll costs and paperwork usually eat the saving.

Also note the salary must be genuinely reasonable for your role and industry — the IRS watches owner salaries closely, and paying yourself $20,000 on $200,000 of profit is an invitation to an audit.

S corp vs. default: the tax math at three income levels

Net profit	Default: SE tax	S corp example split	Payroll tax on salary	You save about
$50,000	$7,065	$30,000 salary + $20,000 distribution	$4,590	$2,475
$100,000	$14,130	$60,000 salary + $40,000 distribution	$9,180	$4,950
$150,000	$21,194	$80,000 salary + $70,000 distribution	$12,240	$8,954

Default = 15.3% × 92.35% of profit. S corp = 15.3% payroll tax on the salary only; distributions escape it. Payroll admin costs are not subtracted — at $50k they can eat most of the saving.

Those savings are gross figures. Running payroll and filing a more complex tax return typically add $1,500–$3,000 a year, so subtract that from the table’s numbers to see the real gain.

To elect S status, file Form 2553. For a calendar-year business wanting the election for 2026, the deadline is generally within 2 months and 15 days of the start of the tax year — which lands on 16 March 2026. Late elections are sometimes granted relief, but do not count on it.

LLC Tax Deductions at a Glance

Every dollar of deductible expense shrinks both your income tax and your SE tax. The everyday ones:

• Home office — $5 per square foot, up to 300 sq ft ($1,500 max), with the simple method.
• Business driving — miles at the IRS standard rate; keep a log.
• Health insurance — premiums for yourself, spouse and kids, if you can’t get an employer plan.
• Retirement — SEP IRA or Solo 401(k) contributions cut this year’s taxable profit.
• Half your SE tax — deductible on your personal return, every year.
• The usual suspects — supplies, software, ads, phone, professional fees, business insurance.

Start-up costs — up to $5,000 of launch expenses are deductible in year one.

Full list with the rules for each: see our Small Business Tax Deductions guide.

How LLC Owners Actually Pay Themselves

Sooner or later every owner stares at the business bank account and asks the practical question: how do I get the money out? The answer depends entirely on your tax election — and doing it the wrong way is one of the costliest LLC mistakes there is.

Disregarded entity: owner’s draws

You simply take an owner’s draw: move money from the business account to your personal account whenever you like. It is not a wage, it is not deductible, and it needs no payroll paperwork.

For tax purposes the profit was already yours: you owe income and self-employment tax on the full profit whether you draw it or leave it sitting in the account.

Partnership: guaranteed payments and distributions

Owners typically take guaranteed payments — fixed amounts for their work, deductible by the LLC and reported on each partner’s K-1 — alongside distributions of profit. Guaranteed payments still attract self-employment tax, so partners cannot shrink the 15.3% the way S corp owners partly can.

S corporation: salary first, distributions second

The order is fixed: working owners must first take a reasonable W-2 salary, with full payroll taxes, and only the remaining profit can come out as distributions free of self-employment tax. Drawing distributions without a defensible salary is exactly what invites IRS reclassification.

C corporation: salary plus dividends

You wear two hats. As an employee you take a W-2 salary, which is deductible to the company; as a shareholder you receive dividends, paid from after-tax profit and taxed again on your personal return. The double tax is the price of the structure — the salary is how you take cash out along the way.

Which Tax Forms Does Your LLC File? A Quick Reference

Match the return to the election, every year — filing the wrong return for your tax treatment is one of the most common, and most fixable, LLC errors.

Your LLC’s tax treatment	Business tax return	What owners receive	Payroll and information forms
Disregarded entity (one owner)	Schedule C and Schedule SE with your Form 1040	Nothing separate — the profit is already yours	Forms 941 and 940, plus W-2s for any employees
Partnership	Form 1065	Schedule K-1	Forms 941 and 940, plus W-2s for any employees
S corporation	Form 1120-S	Schedule K-1 (plus your W-2 salary)	Forms 941 and 940, W-2s including the owner’s salary
C corporation	Form 1120	Form 1099-DIV for dividends (plus your W-2 salary)	Forms 941 and 940, W-2s including the owner’s salary

Two habits make this painless: confirm your current election every January before anything gets filed, and remember that payroll forms — 941 each quarter, 940 each year, W-2s every January — apply the moment you have employees, or the moment an S corp owner takes that required salary.

Not sure which treatment you currently have? Check the letter the IRS sent when you got your EIN (CP 575), the acceptance letter for an S election (CP 261), or request a summary of your entity information with Form 147C by phone.

Changing Your LLC’s Tax Election Later

Elections are not tattoos, but they are not sticky notes either. A disregarded LLC can elect a different classification later by filing Form 8832; S corporation status is elected separately on Form 2553. The catch is the 60-month rule: after changing your entity classification, you generally cannot change it again for 60 months without IRS consent.

That lock-in is what makes a premature S election expensive — five years of payroll costs and extra returns for a business that was not ready. Time the election for when the numbers genuinely support it, not when enthusiasm peaks.

Husband-and-Wife LLCs and the Qualified Joint Venture Election

A married couple running an LLC together sits in a special corner of the rules. By default, a two-owner LLC is taxed as a partnership — even when the two owners are spouses — which means Form 1065, K-1s and partnership paperwork for what is really a family business.

The escape hatch is the qualified joint venture election. To use it, every item on this checklist must be true:

• The only members of the business are the two spouses — no other owners.
• The spouses file a joint tax return.
• Both spouses materially participate in the business.
• The couple elects qualified joint venture treatment.

When all four hold, they may elect to have the venture treated as two sole proprietorships instead: each spouse reports their share of income and expenses on a separate Schedule C, and each earns Social Security and Medicare credit for their share. No partnership return, no K-1s.

A note of honesty: the election is cleanest for unincorporated spousal businesses, and for LLCs it is most clearly supported in community-property states under longstanding IRS guidance — elsewhere, practitioners differ. Because the election changes each spouse’s reported earnings, and therefore their future Social Security benefits, confirm it with a tax professional before relying on it.

The 20% Pass-Through (QBI) Deduction

One of the best tax breaks for LLC owners is the qualified business income (QBI) deduction under Section 199A: a deduction of up to 20% of your pass-through business income. It was scheduled to expire, but 2025 legislation made it permanent – genuinely good news for 2026 and beyond.

For 2026, if your taxable income is below $201,750 (single) or $403,500 (married filing jointly), you generally get the full 20% with no complications. Above those thresholds, wage-and-property limits and special rules for certain service businesses phase in over the next $75,000 of income ($150,000 joint).

There is also a new $400 minimum deduction from 2026: with at least $1,000 of QBI from an active business you materially participate in, your Section 199A deduction is at least $400 (indexed for inflation). An S corporation election does not disqualify you — S corp profit still counts as QBI.

Filing status	Full 20% deduction	Phase-in range
Single	Taxable income below $201,750	$201,750–$276,750
Married filing jointly	Taxable income below $403,500	$403,500–$553,500

Estimated Taxes: Paying as You Go

LLC owners do not have an employer withholding tax from a pay cheque, so the IRS expects you to pay in instalments. If you expect to owe $1,000 or more, you generally must make quarterly estimated payments using Form 1040-ES. For 2026, the due dates are:

• 15 April 2026 — first quarter
• 15 June 2026 — second quarter
• 15 September 2026 — third quarter
• 15 January 2027 — fourth quarter

Miss them and you can face an underpayment penalty even if you pay in full at filing time.

The simplest protection is the safe harbour: pay at least 100% of last year’s total tax (110% if your adjusted gross income was over $150,000) in timely instalments, or 90% of this year’s tax, and you avoid the penalty regardless of what you ultimately owe.

How to figure each quarterly payment

1. Estimate this year’s profit, then figure the tax on it: income tax at your bracket plus SE tax (15.3% × 92.35% of profit).
2. Subtract anything already withheld (e.g., from a day job) and credits.
3. Divide what’s left by four — pay that each quarter.

If earnings are unpredictable, the same safe-harbour rule from above is your simplest protection.

State Taxes and LLC Fees: The Forgotten Layer

Federal rules are only half the story. Every state taxes LLCs differently, and the differences are dramatic. There are three separate state-level costs to watch.

First, the price of existing. Many states charge an annual franchise tax or LLC fee simply for being registered – not on profit, on existence.

California’s $800 minimum franchise tax is the famous example, owed even in a year your LLC loses money. Delaware charges its LLCs a flat $400 annual tax (raised from $300 for tax years from 2026). New York requires a biennial statement. Miss these and the penalties stack up fast, profit or no profit.

Second, gross-receipts-style taxes. A handful of states tax your revenue instead of your profit. The Texas margin tax, Washington’s business-and-occupation tax and Ohio’s commercial activity tax all bite into top-line revenue.

That hurts very differently from an income tax when margins are thin – so if you operate in one of these states, model the tax on revenue, not profit.

Third, sales-tax nexus. Sell physical goods — or, in many states now, digital products and some services — into a state where you have nexus, and you may have to collect and remit that state’s sales tax.

Nexus can come from a warehouse, an employee, or simply crossing an economic threshold of sales into the state – meaning you can owe sales-tax compliance in states you have never visited.

Two practical points: forming your LLC in a “cheap” state does not exempt you from taxes where you actually do business — you will usually need to register as a foreign LLC there anyway. And state compliance is where small LLCs most often get blindsided, so calendar every state’s deadlines separately from your federal ones.

Beneficial Ownership Reporting: One Less Filing

For a brief, chaotic stretch, LLCs faced a brand-new federal filing: FinCEN’s beneficial ownership information (BOI) reports, which would have required most small LLCs to disclose their owners to the Treasury’s Financial Crimes Enforcement Network. That requirement is gone for domestic companies.

Under the interim final rule, LLCs and other companies formed in the United States are exempt from BOI reporting – only certain foreign-formed entities registered to do business here still file.

If you formed your LLC while the rule was in flux and already filed, you are done; if you never got around to it, there is nothing to catch up on.

One caution: this changed recently and rules can change again, so if your ownership involves foreign persons or entities, confirm your status rather than assuming.

Key LLC Tax Deadlines for 2026

• 2 February 2026 — furnish 1099-NEC forms to contractors (31 January falls on a Saturday)
• 16 March 2026 — S corporation and partnership returns (Forms 1120-S, 1065) due; S election deadline for 2026
• 15 April 2026 — individual returns (Schedule C filers) and first-quarter estimated tax due
• 15 September 2026 — extended S corp and partnership returns due
• 15 October 2026 — extended individual returns due

Common LLC Tax Mistakes to Avoid

• Skipping estimated payments. The underpayment penalty is the most common — and most avoidable — LLC tax cost.
• Mixing personal and business money. It muddies deductions and can weaken your liability protection. Our bookkeeping basics for small businesses walks through a simple setup.
• Electing S status too early. On $35,000 of profit, payroll costs erase the saving.
• Setting an unreasonably low S corp salary. The IRS can reclassify distributions as wages, with penalties and interest.
• Forgetting state filings. Annual reports, franchise taxes and state income returns all have separate deadlines.
• Ignoring the QBI deduction. Many eligible owners leave this 20% deduction unclaimed simply because they have never heard of it.

Keep Exploring: LLC Taxes

This hub covers the big picture. For step-by-step walkthroughs of each topic, see our in-depth guides: 1099 forms for contractors, small business tax deductions, payroll and self-employment tax, and bookkeeping basics for small businesses.

Still deciding between an LLC and a corporation? Our comparison guide walks through the difference between LLC and corporation taxes, costs and paperwork — with a $100,000 worked example.

Thinking of forming one? Our guide to the benefits of an LLC breaks down what you actually get — protection, pass-through tax and flexibility — and the one tax benefit an LLC does not give you by default.

If your LLC has just one owner, it is taxed as a disregarded entity by default — our disregarded entity guide explains what that means for your taxes, your EIN, and your W-9.

Once your LLC is making money, the next question is paying yourself. Our guide on how to pay yourself from an LLC walks through all five methods — draws, distributions, guaranteed payments, salary and dividends — on one $120,000 example.

Frequently Asked Questions

Does an LLC pay its own taxes?

By default, no. A single-member LLC’s profit is taxed on the owner’s personal return (Schedule C), and a multi-member LLC’s profit passes through to the owners via K-1s. Only if the LLC elects C corporation status does it pay its own corporate income tax.

Do I need an EIN for my LLC?

Strictly for income tax, a single-member LLC with no employees can use the owner’s Social Security number. In practice, get an EIN anyway — it is free from the IRS, and you will need it for business banking, hiring employees, and filing certain forms.

How much can an S corp election save an LLC?

It depends on profit and salary. On $120,000 of profit with a $70,000 salary, our worked example saves about $6,246 of self-employment tax — a gross figure. Payroll and a more complex return typically cost $1,500–$3,000 a year, which reduces the real gain.

Can an LLC be taxed as a C corporation?

Yes, by filing Form 8832. The LLC then pays the 21% flat corporate rate, and owners pay tax again on dividends. It suits businesses that want to retain earnings or that plan to seek venture-style investment, but it is usually the wrong choice for a typical small service business.

What happens if I miss an estimated tax payment?

You may owe an underpayment penalty calculated on Form 2210, even if you pay everything by 15 April. Catch up as soon as you can, and consider the safe-harbour rule — paying 100% (or 110%) of last year’s tax in instalments protects you from the penalty.

Is the 20% QBI deduction still available in 2026?

Yes — and it is now permanent. LLC owners with taxable income below $201,750 (single) or $403,500 (joint) generally claim the full 20% of qualified business income. Higher earners face phase-in limits, so planning matters.

Do LLCs pay tax in every state they operate in?

Potentially, yes. If your LLC has nexus — offices, employees, inventory or substantial sales — in a state, that state generally expects filings and possibly tax. States also levy their own annual LLC fees and franchise taxes on top of federal obligations.

How do I pay myself from my LLC?

It depends on your election: draws, guaranteed payments, salary-then-distributions, or salary plus dividends. See “How LLC Owners Actually Pay Themselves” above for the full breakdown.

Can I change my LLC’s tax election later?

Yes — Form 8832 changes your classification and Form 2553 elects S status, but the 60-month lock-in means each choice lasts. See “Changing Your LLC’s Tax Election Later” above for the full rules.

Do I have to file taxes for my LLC if it has no income?

A single-member LLC taxed as a disregarded entity has no separate federal filing — with no income, there’s nothing to report on your Schedule C. But state annual reports and fees may still apply, and LLCs taxed as partnerships or corporations keep their filing duties regardless.

Is an LLC double taxed?

No — not by default. Profit is taxed once, on the owners’ personal returns. Double taxation only appears if your LLC elects C corporation status: then the company pays 21% and you pay tax again on dividends.

What are the tax disadvantages of an LLC?

Three: by default you pay 15.3% self-employment tax on all profit — there is no way to split off a salary to shrink it without an S election.

Many states charge annual fees even in loss years. And unlike C corporation owners, you cannot take the same range of tax-free fringe benefits, such as fully deductible health and insurance perks for owner-employees.

What is the best tax classification for an LLC?

There is no single best choice — it depends on your profit. The default is the simplest and works fine at modest income. The S corporation election usually starts to win once profit is consistently above $60,000–$80,000 a year. The C corporation election suits rare cases, like a business keeping large profits inside the company instead of paying them out.

Educational note: this guide is for general information only and is not professional tax advice. Tax law is fact-specific and changes frequently — for decisions about elections, salaries or multi-state filings, consult a qualified tax professional about your situation.

Official sources: IRS guide to LLCs · IRS Publication 3402 on LLC taxation · IRS instructions for Form 2553 · IRS on the qualified business income deduction · FinCEN on beneficial ownership reporting.

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