If you have a Limited Liability Company (LLC) based in Illinois, it is important to know how federal and state taxes affect you.
Your LLC’s specific type of organization determines how the Internal Revenue Service (IRS) and the Illinois Department of Revenue (IDOR) control your business.
In this article, we will discuss the process of IRS tax return filing for Illinois LLC, focusing on classifying the taxes, reporting the taxes, deadlines, and other relevant details.
Understanding LLC Taxation in Illinois
As is the case with corporations, LLCs are not subject to taxation at the entity level by default. They, instead, have pass-through taxation, which refers to a scenario in which profits and losses are passed through to the owners’ tax obligations. Still, some structures receive special treatment:
- Single-Member LLCs: Assumed to be a disregarded entity. All profits and losses pass to the owner’s tax return, which uses Form 1040, Schedule C.
- Multi-member LLCs: Are treated as partnerships by default. They need to file Form 1065 for federal taxes, and each member gets Schedule K-1 to declare their share of partnership income.
- LLCs that Choose Corporation Taxation: An LLC that wants to be taxed as an S Corporation (using Form 1120-S) or C Corporation (using Form 1120) has to follow the corporate tax guidelines.
Owners of Illinois LLCs must also be mindful of the possible self-employment taxes, estimated tax payments, and compliance issues they may incur to avoid penalties.
Federal Tax Filing Requirements for Illinois LLCs
Depending on how the LLC is taxed, the IRS has different forms for different classifications of businesses:
Single Member LLC
- Use Schedule C to report business income and expenses (Form 1040).
- Self-employment taxes must be done using Schedule SE.
- If the LLC has excessive income, estimated taxes (Form 1040-ES) might be necessary.
- If the LLC has employees, the owner also must file Form 941 (Quarterly Employment Tax Return) or Form 944 (Annual Employment Tax Return).
Multi-Member LLC
- A partnership LLC files Form 1065 (U.S. Return of Partnership Income).
- They need to give each member Schedule K-1 to allocate to them their share of the income.
- Members need to report the K-1 income on their tax returns.
- An LLC with employees must also file Form 940 (Federal Unemployment Tax Act – FUTA Tax Return) besides the rest of the employment tax filings.
LLC Taxed as a Corporation
- An LLC that is taxed as a C Corporation is required to file Form 1120 for corporate income tax.
- An LLC taxed as an S corporation must file Form 1120-S, and K-1 is issued to the shareholders to report their earnings on individual tax returns.
Illinois State Tax Filing Requirements
Replacement Tax in Illinois
- Unlike other states, Illinois does impose a replacement tax on LLCs.
- Single-member LLCs pay income taxes on their personal tax returns and are subject to a 1.5% replacement tax on net income.
- Multi-member LLC partnerships are required to file Form IL-1065 and pay the applicable replacement tax.
Corporate Income Tax for LLCs Enacting Corporation Election
- Form IL-1120 must be submitted by C corporations paying 4.8% corporate income tax.
- S corporations do not file state income as they pass income through to shareholders but do file Form IL-1120-ST
Sales and Use Tax for Illinois
- MyTax Illinois accounts must be established for paying Sales Taxes as well as collecting it from LLCs dealing in taxable goods and services.
- Collection of the wrong amount of sales tax can incur penalties, especially since penalties vary depending on the area.
Taxes Relating To Employment
If your LLC has employees, you must withhold and pay Illinois payroll taxes, including:
- State income tax withholding.
- Unemployment insurance tax.
- Workers’ compensation insurance.
Illinois requires businesses to register for an Illinois Withholding Tax Account before hiring employees.
Tax Deadlines Relevant to Illinois LLCs
Federal Tax Deadlines
March 15: Deadline for multi-member LLCs (Form 1065) and S corporations (Form 1120-S).
April 15: Deadline for single-member LLCs (Schedule C, Form 1040) and C corporations (Form 1120).
Estimated Tax Payments: Due quarterly (April 15, June 15, September 15, and January 15 of the following year).
Payroll Tax Deadlines: Employment tax filings are due quarterly (April 30, July 31, October 31, and January 31 of the following year).
Illinois States Taxes
April 15: Due date of individual tax filings using Form IL-1040 for single members
March 15: Due for the partnerships Form IL-1065 and S Corporations with the Form IL-1120-ST
April 15: Due for C Corporations with the Form IL-1120.
Sales Tax Filings: Due monthly or quarterly, depending on the business’s tax liability.
Penalties for Late Submission
As for other deadlines, American law states that penalties can accrue as a result of infringement.
Federal penalties: The IRS imposes a 5% penalty per month on unpaid taxes, up to 25% of the total amount.
State penalties: Illinois charges a 2% to 10% penalty on unpaid taxes, depending on the duration of non-payment
Interest for not paying taxes on time: The Illinois Department of Revenue and the IRS impose interest payments for tax payments done late.
Fines for not filing: LLCs who do not submit certain forms may suffer more penalties, like losing their good standing status as a consequence.
Steps to File Your Illinois LLC Tax Return
Step 1: Identify your LLC classification (Single-Member, Multi-Member, or Corporation).
Step 2: Collect business documents such as income and expense reports, as well as payroll documents.
Step 3: Complete the appropriate U.S. tax forms (Schedule C, Form 1065, Form 1120, or Form 1120-S).
Step 4: Prepare corresponding state tax documents for Illinois like IL-1040, IL-1065, and IL-1120, if applicable.
Step 5: Make any necessary estimated tax payments.
Step 6: Save all documents showing taxes filed and payments received for future reference.
How EasyFiling Can Help
Although filing taxes for an Illinois LLC may be challenging, you do not have to go through it alone. An EasyFiling is ready to assist with filing taxes, bookkeeping, and LLC formation so that clients comply with federal and state tax regulations.
- Tax Return Preparation: Help file the requested documentation with the IRS and State of Illinois within the required deadlines.
- Bookkeeping Services: Organizing financial records year-round.
- Payroll Management: Shifts the burden of filings and compliance with payroll tax obligations to our company.
- Business Tax Consultation: Professional help to maximize cost or transfer price deduction.
Begin now and let our pros help you file taxes on your Illinois LLC without a hitch.
Frequently Asked Questions (FAQs)
Are all LLCs in Illinois liable for the replacement tax?
The replacement tax does not apply to all LLCs. Single-member LLCs that are sole proprietor filers usually do not incur it, while multi-member LLCs and those who opt for corporate taxation are always subjected to a 1.5% replacement tax.
What are the consequences of not filing taxes for my Illinois LLC within the designated timeframe?
Deadlines, if not met, can subject you to penalties, along with interest from the IRS and the Illinois Department of Revenue. Penalties federally can be up to 25% of the taxes owed, while in Illinois they can vary from 2-10%.
Is it possible to claim tax deductions on my Illinois LLC?
Yes, LLCs can deduct any business expenses such as rent, salaries, supplies, and other marketing expenses. This requires proper bookkeeping, which maximizes your chances of claiming deductions.
Are LLCs based in Illinois required to fill out an annual report?
Every LLC in Illinois is required to file an Annual Report along with a fee of $75. Failure to file jeopardizes your LLC as it can be dissolved.
In what way can EasyFiling assist with my Illinois LLC taxes?
With EasyFiling, there is nothing to be concerned about because your Illinois LLC’s tax filing, bookkeeping, payroll, and other compliance activities will be done precisely, timely, and entirely without hassle.
Nabin Adhikari
