Managing and operating a Limited Liability Company (LLC) in Rhode Island means you also have some tax attention to pay off.
As the owner of an LLC, it’s important to comprehend how the IRS views your business for tax reasons and any particular state tax requirements that need to be fulfilled. Adhering to tax regulations helps you avoid penalties and maximize deductions.
In this article, we will discuss the process of IRS tax return filing for Rhode Island LLC, focusing on classifying the taxes, reporting the taxes, deadlines, and other relevant details.
Federal Taxation of Rhode Island LLCs
Single Member LLC Taxation
The default classification by the IRS for a Single Member LLC is a disregarded entity. This implies:
- The LLC income and expenses appear on the owner’s Form 1040 under Schedule C.
- The owner pays self-employment taxes, 15.3% of Social Security and Medicare.
- If not enough tax is being withheld from other earning sources, you will most likely need to make additional estimated quarterly tax payments.
- Additional forms such as Schedule SE (Self-Employment Tax) and Form 1040-ES (Estimated Tax Payments) may be required to pay taxes systematically.
Multi Member LLC Taxation
By default, a multi-member LLC is classified as a partnership and is required to file:
- Form 1065 (U.S. Return of Partnership Income) to report earnings from the business.
- Every member gets an allocated Schedule K-1 (Form 1065) for their share of income, deduction, and credits.
- Members include the K-1 income on Schedule A with their Form 1040.
- Depending on their activities, multi-member LLCs may also file state partnership returns for their particular business.
Electing Corporate Tax Treatment
An LLC in Rhode Island can choose to be taxed as an S Corporation or C Corporation by submitting:
- Form 2553 in which the LLC will elect to be treated as an S Corporation and have income flow through to the owners with the possibility of self-employment tax shield.
- Form 8832 whereby the LLC would elect C Corporation, which subjects it to the filing of Form 1120 for corporate tax and possible double taxation (corporate and personal).
- Electing S-Corp status enables LLC owners to pay themselves a reasonable salary and take the rest of their profits as distributions, thereby reducing their self-employment taxes.
Rhode Island State Taxes on LLCs
Annual Minimum Tax
The state of Rhode Island will charge LLCs a minimum franchise tax of $400, irrespective of the LLC’s income or activity. This is to ensure a baseline revenue from LLCs irrespective of how much they earn.
State Income Tax For Pass-Through LLCs
- Single-member and multi-member LLCs that are taxed as pass-through entities report their income in the owner’s tax return for Rhode Island, Form RI-1040.
- In Rhode Island, the income tax is set at 3.75% to 5.99% depending on taxable income.
- Business owners may need to make payments every three months; otherwise, they could risk penalties.
Corporate Income Tax (If Elected)
- Form RI-1120C is filed with LLCs that are taxed as C Corporations. They are also subject to Rhode Island’s corporate tax: 7% of the C Corporation’s net income or a minimum tax of $400, whichever is higher.
- In addition to federal income tax, C Corporations in Rhode Island are subject to state reporting and record-keeping requirements.
Sales Tax Obligations
If your Rhode Island-passed LLC intends to sell taxable products or services, they are required to:
- Sign up for a sales tax account with the Rhode Island Division of Taxation.
- Charge the appropriate sales tax of 7% and then pay it.
- Submit a report detailing the sales tax collected and any taxes due on the sales tax.
Taxes for Employers
If your LLC hires employees, you will need to:
- Deduct Rhode Island state income tax from the earnings and send it to the state.
- Take care of Unemployment Insurance (UI) taxes and other payroll liabilities.
- Get workers’ compensation insurance and other benefits required by the state.
IRS Tax Filing Deadlines for Rhode Island LLCs
- March 15: Form 1065 (for partnerships) or Form 1120S (for S Corps) due. Extensions are available until September 15.
- April 15: Form 1040 with Schedule C (for single-member LLCs) or Form 1120 (for C Corps) due. Extensions are available until October 15.
- Quarterly Estimated Taxes: Due on April 15, June 15, September 15, and January 15 of the following year.
Penalties for Late Filing and Non-Compliance
If you fail to follow an IRS tax return such as defaulting on payments, you can end up facing serious charges, such as:
Late Filing Penalty: 5% monthly taxable amount unpaid, maximum up to 25%.
Overdue Payment Charges: 0.5% each month for any unpaid taxes, gets increased later.
Penalties For Not Filling Out A Type 1065: 220$ for each partner each month, limit of one year.
Penalty For Not Filling Out Type 1120: Minimum penalty of $485 or 100% of unpaid tax, whichever is lower.
Individual Tax Balance: Unpaid tax amounts invite additional charges for every passing day until completed.
State Tax Liabilities: Non-payers in Rhode Island could expect added payments like tardy sales tax dues or taxes not filed for unused company accounts.
Steps to File Your IRS Tax Return for a Rhode Island LLC
Choose LLC tax status: Single-member(hiring Schedule C), Multi-Member or 1065, Corporation tax form 1120 or 1120S.
Collect Financial documents: Various reports regarding income, expenses, payroll, and taxes should be accumulated.
Tax Forms Are Essential: Depending on the IRS classification, the appropriate skeleton for the LLC is needed.
File Estimated Taxes: In case of required payment intervals, make sure to pay in advance to not receive additional fees.
Deadline for Submission of Tax Documents: Ensure that the submitted taxes on the federal and state level are completed within the specified time range to eliminate possible fines or interest payments.
Stay Up-To-Date: Eligible Expenses are meticulously recorded, and regulations on taxation are constantly kept up to date.
Professional Help: Get advice from experts in potentially difficult situations surrounding tax statements, deductions, and entity type subclassifications.
How EasyFiling can assist you
Rhode Island LLC owners have a much easier time complying with tax obligations due to EasyFiling’s services, which include:
- IRS and Rhode Island tax filings
- Bookkeeping services with EasyBooks
- Sales tax registration and compliance
- Payroll tax management
- Personalized tax planning and advice
Stop worrying about your tax responsibilities and let you focus on running your business while we take care of your LLC’s tax needs. Reach out to us now!
Frequently Asked Questions (FAQs)
1. Is it true that every LLC in Rhode Island must submit an IRS tax return?
Every LLC in Rhode Island is required to submit a tax return depending on their tax classification. Single-member LLCs report income on Schedule C of Form 1040 whereas multi-member LLCs will end up filing Form 1065. If the LLC has elected to be taxed as an S Corporation or C Corporation, then they are required to fill out Form 1120S or Form 1120, respectively.
2. What are the consequences of not paying the annual minimum tax for LLCs in Rhode Island?
If the $400 minimum franchise tax is not paid, there are penalties and interest charges that follow. Your LLC will also lose its good standing status with the Rhode Island Division of Taxation leading to problems in conducting business.
3. Do Rhode Island LLC owners have to pay self-employment tax?
The answer is yes, you will owe self-employment tax if your LLC is taxed as a sole proprietorship (single-member LLC) or as a partnership (multi-member LLC). A business owner can, however, elect self-employment S corporation status, which could help reduce some self-employment tax.
4 . Am I required to pay an estimated tax for my Rhode Island LLC?
You might need to pay estimated quarterly payments for taxes to the IRS and Rhode Island if your LLC does not pre-tax or has a low enough tax withheld through payroll or otherwise, and you risk penalties for tax underpayment.
5. In what ways can EasyFiling assist with my LLC tax filing in Rhode Island?
EasyFiling assists with the preparation of tax returns, bookkeeping, sales taxes, payroll, and other planned personal taxes in order to help your LLC remain compliant and make the most out of available deductive allowances.
Nabin Adhikari
