Are LLCs Required to File Taxes? Here are the ground rules

If you own an Arizona limited liability company (LLC), you must file certain tax documents with both the state and federal governments. However, unlike corporations, an LLC is not required to submit an annual report to the State of Arizona.

Your State Business Taxes

An LLC falls under the pass-through tax, which means its federal income taxes pass through the LLC and fall to you, the LLC member. If your LLC has more than one member, then each member receives a share of the tax burden. Therefore, the LLC itself does not pay taxes, but its members do. You would file taxes from your LLC each year with your personal income tax return instead of filing a separate return for the LLC itself.

Arizona does not impose a separate tax or fee to your LLC for doing business in the state unless you request that your company be treated as a corporation to avoid pass-through taxing.

If your LLC is classified as a partnership, you must report all income to the Arizona Department of Revenue using Form 165 for partnerships. Single-member LLCs that are classified as corporations must also report their company’s income through Form 120.

Your LLC Setup is Important

To avoid pass-through taxation, your business must first organize itself as a corporation with the Internal Revenue Service through IRS Form 8832. Form 8832 can be applied for at any time; therefore, it is best to speak with an attorney and financial advisor about the implications of being classified as a corporation versus a member LLC.

When Your Business is Classified as a Corporation, Your LLC Does Pay Taxes

If you have opted to be a corporation through the IRS, then Arizona’s Department of Revenue not only requires that you report your annual income, but that you pay taxes on that income. The tax rate is a flat percentage that is payable to the Department of Revenue.

Filing Employers Tax

An LLC with employees must pay employer taxes to the state as well. Therefore, you are required to withhold all income taxes and pay them to the Department of Revenue. You typically withhold these quarterly, and pay them regularly, then reconcile at the end of the year.

Also, an LLC is required to file and pay all state unemployment insurance taxes if it has employees working for it. These are not handled by the Department of Revenue but are instead managed by the Department of Economic Security.

Understanding the tax requirements for an LLC is difficult, especially because your classification and structure profoundly influence how your taxes are treated. For clarification and assistance with tax law for Arizona LLC’s, speak with an attorney at Udall Shumway, PLC.

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Are LLCs Required to File Taxes, or any other litigation matters, please feel free to contact Roger C. Decker at  480.461.5343, log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.