Does an LLC have to file taxes even if there was no income during the tax year? Whether you’re legally required to file business taxes with no income depends on how your LLC is taxed. LLCs have the unique ability to be taxed in many ways, and each taxation status has a set of rules for business tax filings. Don’t forget about state tax filings. Businesses are registered at the state level, so you might be required to file a state return while being exempt from federal filing.
Tax Election and Filing Obligations
The LLC tax election is an important feature of pass-through taxation for LLCs. If you fail to file this election, your LLC will be taxed like a regular corporation, not a pass-through taxation entity.
No matter your LLC tax classification, operating at a loss or with no income doesn’t preclude you from filing your tax return. It’s important — and the law — to file taxes for an LLC with expenses and no income.
LLCs treated as sole proprietorships are responsible for filing their taxes using either a 1040 Schedule C or a 1040 Schedule C-EZ Form. This form is to be included with the individual’s personal income tax return and will report any profits or losses from the LLC.
LLCs treated as partnerships file taxes using Form 1065, U.S. Return of Partnership Income, which reports the LLC’s income, deductions, gains, and losses to both partners and the IRS. The form must be filed annually by the 15th day of the fourth month after the end of the tax year.
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.
Filing taxes for your LLC, regardless of income, helps maintain the company’s good standing with the IRS. It shows that you are fulfilling your obligations as a separate legal entity, which may be beneficial in case of future audits or legal procedures.
Consequences and Considerations
What happens if an LLC does not make money? LLCs taxed as corporations file returns regardless of income. C-corps use Form 1120. S-corps use Form 1120S. Both entity types pass income to shareholders. Shareholders then report income on personal returns. This avoids double taxation of earnings.
LLCs with losses can write off investments, deduct expenses, or carry losses forward. Truly worthless investments qualify for write offs on Form 8949. Operating losses help lower or eliminate the tax burden. Most LLC structures let owners claim losses personally.
Filing taxes for no income LLCs has benefits, such as establishing a deduction history and maintaining compliance if claiming tax-exempt status. Not filing risks penalties, back taxes, or suspension. Some states charge fees regardless of income. California, for example, charges $800 to LLCs operating or organized there.
Specific Scenarios
Can an LLC with expenses but no income still need to file taxes?
Having an LLC with no income but expenses is common and normal for many businesses, especially during their early stages of operation. As long as members understand their legal and financial responsibilities and obligations, there is no issue with having expenses but no income as an LLC.