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
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.
Does an inactive LLC need to file taxes? ›
LLC Corporations
It is mandatory for all corporations to file annual tax returns, even if the business was inactive or did not receive income. An LLC that chooses to be treated as a C corporation for tax purposes is required to file Form 1120 (U.S. Corporation Income Tax Return).
Does LLC have to file a tax return if there is no income? ›
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.
What happens if you have business expenses but no income? ›
Even if your business has no income during the tax year, it may still benefit you to file a Schedule C if you have any expenses that qualify for deductions or credits. If you have no income or qualifying expenses for the entire tax year, there is no need to file a Schedule C for your inactive business.
Do I need to file taxes if I made no money with my business? ›
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.
What if my LLC is inactive? ›
If a corporation or LLC is inactive by means of revocation or administrative dissolution, it cannot legally transact business in a state. This can impact the entire organization's ability to engage with clients, creditors, and other government agencies.
What is it called when an LLC does not file tax? ›
In California, single-owner LLCs are also referred to as “disregarded entities.” Although they are not required to file taxes, single-owner LLCs are required to pay a yearly LLC fee.
Do you file LLC and personal taxes together? ›
The IRS disregards the LLC entity as being separate and distinct from the owner. Essentially, this means that the LLC typically files the business tax information with your personal tax returns on Schedule C.
How to file a zero income tax return? ›
Since you didn't earn any income for the year, you'll enter a "-0-" in each blank. Your total income will also be "-0-." Double-check to make sure that none of the income categories applies to you. For example, if you have money in a savings account that earns interest, you may have to report that interest as income.
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.
If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income on page 1 of Form 1040 or 1040-SR. But in some situations your loss is limited. See Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C), for more information.
Do I need to file 1065 if there is no activity? ›
Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.
Do I need to file 1120s if there is no activity? ›
For clarity: Even if the corporation has no expenses, depreciation, assets, carryforwards, et al, an 1120-S still needs to be filed as long as the S corporation election remains in effect. Returns (Form 1120-S) can continue to be filed, regardless of activity, as long as the election remains in effect.
What happens if a small business does not file taxes? ›
If the IRS suspects that you have not filed your taxes for several years, they will eventually contact you. Unfortunately, this could lead to serious financial consequences such as fines, penalties, garnished wages, liens on property, and even imprisonment in extreme cases.
Do you have to file taxes if your business made less than 600 dollars? ›
If I didn't get a 1099-NEC or 1099-MISC, do I still need to report the income if it's less than $600? Yes. The IRS requires that you report all of your income, even if it's less than $600 and you didn't get a tax form for it. Follow these steps to enter your income.
Does an LLC avoid self employment tax? ›
If you create an LLC with one member and do not elect to be taxed as a corporation (see below), then you will still continue to pay self-employment tax as an LLC. Your tax liability for self-employment tax does not change. LLC taxed as an S corporation. As an LLC, you can elect to be taxed as an S corporation.
What happens if you don't file your taxes but don't owe anything? ›
There's no penalty for failure to file if you're due a refund. However, you risk losing a refund altogether if you file a return or otherwise claim a refund after the statute of limitations has expired.
Can EIN be inactive? ›
Many business owners think that once all final tax filings have been made, the IRS will automatically discontinue or close an EIN, but just as the title of this article implies, a business's EIN is never discontinued, reassigned or reused. Regardless of whether or not an EIN was ever used, the number is PERMANENT.
