Filing Business Taxes for an LLC for the First Time

How to Prepare Before Filing LLC Taxes for the First Time

Getting ready to file your LLC taxes for the first time is a key step in building a strong financial foundation for your business. Proper preparation helps you avoid costly mistakes, take advantage of eligible deductions, and ensure you’re meeting all your small business tax obligations.

Here are three essential areas to focus on as you prepare for filing taxes for an LLC for the first time:

Step 1: Organizing Financial Records and Income

Before you can file your income tax return or business tax return, you need to gather and organize all your financial documents. This includes:

• Bank statements
• Invoices and receipts
• Records of business expenses
• Any prior year tax filings (if applicable)

Having clean, accurate records is critical for reporting business income correctly, minimizing errors, and maximizing deductions. Whether you're handling cost accounting or just tracking day-to-day income and expenses, staying organized helps paint a clear picture of your business's financial health.

To make this easier, many small businesses use bookkeeping or accounting software to automate tracking and reduce manual errors. Keeping your business and personal finances separate is also essential, especially when it’s time to file your federal income tax.

Step 2: Choosing the Right Tax Year

When filing business taxes for an LLC for the first time, you’ll need to choose your tax year — either:

• A calendar year (January 1 – December 31), which most LLCs use
• Or a fiscal year, which can better align with certain industries or seasonal businesses

Your chosen tax year affects when your income tax return is due and how you calculate estimated taxes. For example, a fiscal year might help balance cash flow if your income is highly seasonal.

Choosing the right tax year is also tied to your business entity classification. Some LLCs taxed as corporations may have different filing timelines based on corporate tax rules, so it’s a good idea to consult with a tax professional when deciding.

The table below outlines the basic differences between a calendar year and fiscal year when it comes to filing taxes.

Step 3: Understanding Estimated Taxes

If your LLC generates income that isn’t subject to regular withholding (like wages), you’ll likely need to make estimated tax payments throughout the year. These payments cover:

• Federal income tax
• Self-employment tax (Social Security and Medicare contributions)

You must pay estimated taxes if you expect to owe at least $1,000 when you file your business tax return. The IRS has four key tax deadlines: April 15, June 15, September 15, and January 15 of the following year.

Use Form 1040-ES to calculate and submit these payments. Regularly reviewing your income and expenses (and even basic profitability ratios) can help you estimate how much to pay and avoid penalties for underpayment.

Federal Tax Filing Requirements for LLCs

One of the most important decisions you'll make when filing taxes for an LLC is choosing how your business entity will be taxed at the federal level. While an LLC is a legal structure, the IRS allows it to be taxed in several ways, each with different filing requirements, forms, and potential benefits.

Most LLCs are taxed as either sole proprietorships or partnerships by default, but you can also elect to be taxed as an S Corporation or C Corporation, depending on your business goals.

Filing as a Sole Proprietor (Form 1040 Schedule C)

If you're the only member of your LLC and haven’t elected corporate tax treatment, the IRS considers your business a disregarded entity for tax purposes. This means your LLC is taxed like a sole proprietorship.

You’ll report your business income and expenses using Form 1040 Schedule C, which is included in your personal income tax return.

To file:

• Use Schedule C (Form 1040) to report your LLC’s income and expenses
• Calculate your net profit or loss, which is then included on your personal Form 1040
• You’ll also be responsible for paying self-employment tax on your earnings

This method keeps your filing relatively simple, especially for solopreneurs and freelancers with straightforward income.

Filing as a Partnership (Form 1065)

If your LLC has two or more members and hasn’t elected corporate treatment, it’s taxed as a partnership. In this case, the LLC must file Form 1065, an informational return that outlines the business’s income, deductions, and credits.

Here’s how it works:

• File Form 1065 to report the LLC’s total income and expenses
• Provide each member (partner) with a Schedule K-1, which details their share of the profits or losses
• Each member then includes the K-1 information in their personal income tax return

Even though the LLC doesn’t pay federal income tax directly as a partnership, individual members are taxed on their share of the business income. It’s a pass-through structure, and keeping accurate records year-round is crucial to avoid errors or delays in your business tax return.

Electing S Corp or C Corp Status

Some LLCs may benefit from electing S Corporation or C Corporation tax treatment to better align with their long-term goals or to optimize tax savings.

• To elect S Corp status, file Form 2553 with the IRS.
• To elect C Corp status, file Form 8832.

An S Corporation may reduce the amount of income subject to self-employment tax, while a C Corporation is subject to corporate tax but may offer more flexibility in reinvestment and ownership structure.

However, these tax elections also come with more complex compliance requirements, payroll rules, and limitations, especially for small business tax planning. Choosing the right path depends on factors like your revenue, payroll, reinvestment strategy, and profitability ratios.

Before making this decision, it’s wise to speak with a tax professional to understand how each structure impacts your business tax return, ongoing filings, and overall tax liability.

The table below summarizes the main differences between an S Corp and C Corp in terms of business taxes.

State and Local Tax Obligations for LLCs

When filing business taxes for an LLC for the first time, it's important to understand that your responsibilities don’t end at the federal level. Every LLC must also comply with state and local tax requirements, which vary widely depending on your location.

While the IRS handles your federal income tax, your state and city may have additional tax obligations, and failing to meet them can lead to fines or even the loss of good standing for your business.

Common State and Local Tax Requirements for LLCs

Many states impose their own version of a business tax, such as a franchise tax, annual filing fee, or privilege tax. These charges may be flat fees or calculated based on your LLC’s revenue, profits, or industry.

Here’s a quick look at how some states differ:

In addition to state obligations, many cities and counties also impose local taxes, such as business license fees, local income taxes, or gross receipts taxes.

For example, some cities require LLCs to renew a business license each year or file separate local returns based on location-specific income thresholds.

To stay compliant:

• Research your state’s LLC tax requirements via its Department of Revenue
• Check local city or county websites for business license or local tax rules
• Work with a tax advisor to ensure full compliance based on your business entity type and location

Understanding both state and local tax obligations helps you file accurately, avoid late fees, and maintain your LLC’s good standing with all tax authorities.

Important Tax Deadlines and Forms for First-Time LLC Owners

As a new LLC owner, staying on top of tax deadlines and paperwork can make all the difference in avoiding costly mistakes. Missing a deadline or filing the wrong form can result in penalties, interest charges, or lost deductions, all of which can hurt your business financially.

Staying organized and informed about due dates ensures your LLC stays compliant and in good standing with the IRS.

Key Federal Tax Deadlines for LLCs

Note: If a deadline falls on a weekend or federal holiday, it typically shifts to the next business day.

Final Thoughts: Filing Business Taxes for Your LLC for the First Time

Filing business taxes for your LLC for the first time can feel overwhelming, but with the right preparation and ongoing organization, it becomes much more manageable. Keeping your financial records accurate and up to date isn’t just essential for taxes, it’s the foundation for running a healthy, growing business.

And that’s where having the right tools makes all the difference. Managing your invoices efficiently throughout the year helps you stay organized, saves time, and ensures your income is well documented come tax season.

Tofu offers a professional invoicing app designed specifically for busy small business owners like you, helping you take control of your financial workflow with ease. With Tofu, you can:

• Create and send polished invoices in under a minute.
• Get paid faster with easy-to-use templates.
• Simplify your bookkeeping so tax time is less stressful.
• Access your invoicing anytime, anywhere from your mobile device.

Switching to Tofu means less time spent on paperwork and more time focused on growing your business, making your first tax filing, and every day after that, smoother and more efficient.

Ready to streamline your invoicing and simplify your business finances? Check out Tofu’s invoicing app today!

FAQ

What is the tax classification for a single-member LLC?

A single-member LLC is typically classified as a sole proprietorship for federal tax purposes. This means you report your LLC’s income and expenses on your personal tax return using Form 1040 Schedule C.

How is a multi-member LLC taxed?

By default, a multi-member LLC is treated as a partnership for tax purposes. The LLC files Form 1065 to report income and expenses, and each member receives a Schedule K-1 to report their share of profits or losses on their personal tax returns.

Can an LLC elect to be taxed as a corporation?

Yes, an LLC can elect to be taxed as either an S Corporation or a C Corporation by filing the appropriate forms with the IRS (Form 2553 for S Corp or Form 8832 for C Corp). This election may provide tax advantages depending on your business goals.

How do I make estimated tax payments for my LLC?

If you expect to owe $1,000 or more in taxes, you must make quarterly estimated tax payments using Form 1040-ES. These payments help cover your income tax and self-employment tax liabilities throughout the year.

What types of business expenses can I deduct on my LLC tax return?

You can deduct ordinary and necessary business expenses, such as rent, office supplies, utilities, business travel, and marketing costs. Keeping detailed records of these expenses can help reduce your taxable income.

What happens if I miss the deadline to file my LLC tax return?

Failing to file your LLC tax return on time can result in penalties and interest charges. It’s important to either file by the deadline or submit an extension request using Form 7004 to avoid these fees.