Sometimes a limited liability company (LLC) has a year with no business activity. For example, a newly formed LLC might not have started doing business yet, or an older LLC might have become inactive without being formally dissolved.
But even though an inactive LLC has no income or expenses for a year, it might still be required to file a federal income tax return.
LLC tax filing requirements depend on the way the LLC is taxed. An LLC may be disregarded as an entity for tax purposes, or it may be taxed as a partnership or a corporation.
Tax elections for LLCs
If an LLC only has one owner (known as a “member”), the Internal Revenue Service (IRS) automatically disregards it for federal income tax purposes. The LLC’s member reports the LLC’s income and expenses on his or her personal tax return.
If an LLC has two or more members, the IRS automatically treats it as a partnership. The LLC files an informational partnership tax return and the members also report the LLC’s income and expenses on their personal tax returns.
However, an LLC can change these default classifications and choose to be taxed as a corporation. To do this, the LLC must file Form 8832 with the Internal Revenue Service. The LLC may make this election when it is formed, or it may elect to change its tax classification at a later date.
Filing requirements for disregarded entities
An LLC that is not considered a separate entity for federal income tax purposes is taxed in the same way as a sole proprietor: the LLC’s income and expenses are reported as self-employment income on Schedule C of the member’s personal tax return. You are required to file Schedule C if your LLC’s income exceeded $400 for the year.
If a one-member LLC did not have any business activity and does not have any expenses to deduct, the member does not have to file Schedule C to report the LLC’s income. However, the member will still have to file a personal tax return if he or she had other income, and may have to file a Schedule C if there was self-employment income from another business.
Filing requirements for an LLC partnership
An LLC that is taxed as a partnership is subject to the same federal income tax return filing requirements as any other partnership. The LLC must file an informational partnership tax return on tax form 1065 unless it did not receive any income during the year AND did not have any expenses that it will claim as deductions or credits.
Thus, an LLC with no business activity that is taxed as a partnership is not required to file a partnership tax return unless there are expenses or credits that the LLC wants to claim.
LLC tax filing requirements for an LLC corporation
Corporations have different tax filing requirements than either disregarded entities or partnerships. All corporations are required to file a corporate tax return, even if they do not have any income.
If an LLC has elected to be treated as a corporation for tax purposes, it must file a federal income tax return even if the LLC did not engage in any business during the year.
Even if your LLC has no business activity, it is important to understand your LLC tax filing status and whether it is obligated to file a federal income tax return. Filing required returns on time can help your LLC avoid fines and penalties.
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FAQs
LLC Corporations
Does an LLC need to file taxes if there is no income? ›
Legal compliance: Filing your tax return is a legal requirement, even if your LLC didn't generate income. It helps maintain your good standing with the IRS and state tax authorities.
What is it called when an LLC does not file tax? ›
A disregarded entity LLC is a limited liability company that is not separate from its owner for federal income tax purposes. It's a popular choice for single owners, allowing them to benefit from limited liability protection while avoiding the complexity of corporate tax.
What happens if you have business expenses but no income? ›
In your first few months or year of operation you may not bring in any income. Even without income, you may be able to deduct your expenses, as long as you meet certain IRS guidelines. Your business loss can offset other income on your tax return and lower your overall tax bill.
Do I need to file taxes if my business didn't make money? ›
If you were actively engaged in your trade or business but didn't receive income, then you should file and claim your expenses. Ex: You're paid upon completion of your work. You should still file, even if you haven't received income yet.
Does an inactive LLC need to file taxes? ›
However, an LLC may elect to be taxed as a corporation. (Alternately, LLCs may elect to be taxed as partnerships, which our Sacramento small business accountants discuss below.) It is mandatory for all corporations to file annual tax returns, even if the business was inactive or did not receive income.
What happens if my LLC does not make money? ›
All corporations are required to file a corporate tax return, even if they do not have any income. If an LLC has elected to be treated as a corporation for tax purposes, it must file a federal income tax return even if the LLC did not engage in any business during the year.
How can an LLC avoid income tax? ›
File as an S corporation
LLCs have the option of filing as an S corp., the main benefit of which is it provides a mechanism for reducing self-employment taxes. Under an S corp structure, the owner of an LLC can be considered an employee and receive a salary.
Does a single member LLC file a separate tax return? ›
For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity.
Should LLC file taxes? ›
Generally, members of LLCs filing Partnership Returns pay self-employment tax on their share of partnership earnings. If the LLC is a corporation, normal corporate tax rules will apply to the LLC and it should file a Form 1120, U.S. Corporation Income Tax Return.
In most cases, a small business with no employees and has filed income tax returns in the past must file its annual return within three years of the original due date. The IRS considers this the "normal" period, so if your company falls into this category, you could wait up to three years before filing your taxes.
Will I get a tax refund if my business loses money? ›
If you open a company in the US, you'll have to pay business taxes. Getting a refund is possible if your business loses money. However, if your business has what is classified as an extraordinary loss, you could even get a refund for all or part of your tax liabilities from the previous year.
How much income can a small business make without paying taxes? ›
Income of $400 or less after deductions
Generally, self-employed individuals must pay a self-employment tax to make sure they pay their portion of FICA taxes based on their annual income. But, if your net earnings from self-employment were less than $400, you don't have to file a business tax return.
Does LLC have to file a tax return if there is no income? ›
It is required to file taxes for an LLC even with no income. This is because the Internal Revenue Service (IRS) treats LLCs as pass-through entities, which means that the LLC's income is passed through to its owners and reported on their individual tax returns.
What happens if a business owner does not file taxes? ›
File a lien secured to your property, meaning they have a say in any sale of your property or assets and will take the tax payments you owe from the proceeds. Charge you with tax evasion if you willfully avoid filing taxes. You could face fines up to $250,000, and even jail time in extreme cases.
Do you have to file taxes your first year in business? ›
If your business made more than $400 in income this year, you are required to pay taxes your first year in business. The main thing to consider when filing taxes in your first year in business is the business tax payment deadlines.
Do I file taxes if I have no income? ›
Any year you have minimal or no income, you may be able to skip filing your tax return and the related paperwork. However, it's perfectly legal to file a tax return showing zero income, and this might be a good idea for a number of reasons.
Do I need to report K-1 with no income or loss? ›
If your business is operating at a loss and there is no taxable income for any partner or shareholder to report, the partnership is still responsible for issuing Schedule K-1s.
