If you are the owner of an LLC and want to file the correct tax return for your business, the job starts with gathering the right documents. You’ll need records to validate all your business’s income, deductions, expenses and other figures reported across various forms. The tax forms you’ll use vary depending on whether you have a single or multi-member LLC or are filing as a corporation. However, no matter what forms you’re filing out, keeping and having access to thorough records is key to smooth tax filing. It doesn’t matter to the IRS whether these records are in electronic or paper formats, but they do need to be complete, clear and up to date. To make sure you’re doing your LLC tax return correctly, talk to a financial advisor who specializes in small business taxes.
LLC Tax Filing Basics
A limited liability company (LLC) is a business structure that combines some aspects of sole proprietorships or partnerships with corporations. Similar a corporation, an LLC protects its owners from personal liability for business debts and legal issues. And like a sole proprietorship or partnership, owners of most LLCs report LLC profits and losses on their personal tax returns rather than the business paying taxes itself.
LLCs register with the states, and the IRS doesn’t recognize LLCs as a taxable business entity. There is no federal LLC return, although states may have forms for LLC taxes. Instead, at the federal level each LLC’s tax status is assigned by default depending on the business ownership structure. This determines how the LLC files and which forms are used. Here are three options:
- Single-member LLCs report business income and losses on Schedule C, which attaches to the owner’s Form 1040 personal tax return.
- Multi-member LLCs file an informational Form 1065 showing total income and expenses plus Schedule K-1s documenting each member’s share. The members report their K-1 amounts on Schedule E with their Form 1040.
- An LLC taxed as a C corporation pays taxes on its income before distributing profits to shareholders, and and LLC taxed as an S corporation passes through its income to its shareholders’ personal returns. If you elect to have your LLC taxed as a corporation, you’ll file Form 1120 if it is a C corporation or Form 1120-S if it is an S corporation.
No matter its tax status or the forms used, an LLC must maintain documents supporting all numbers entered on returns. The IRS may request proof of any figures during an audit or review.
Business Records and Documents You Will Need
Depending on your type of business, you may have different records and use various formats. For example, an Internet retailer won’t have printed cash register tapes as a brick-and-mortar retailer might. The basic categories of documents required to complete a return for an LLC are the same for all businesses, however. They include the company’s income, expenses, assets and payroll, among other things. Here are details on each:
Income Records
The most basic supporting documents are those showing gross business revenues for the year. These provide justification for the income figures reported. Key records in this category may include:
- Business bank account deposits tracing payments received
- Cash register tape receipts documenting each sale
- Issued customer receipts
- Invoices sent to clients
- 1099-NEC forms if the business was paid more than $600 as a contractor
Expense Records
An LLC also needs evidence to support the various operating expenses deducted to lower its taxable income. Supporting documents for expenses can include:
- Canceled checks showing vendor payments
- Invoices for products and services purchased
- Credit card statements tracing individual charges
- Bank and credit card statements to prove payment
Asset and Depreciation Records
LLCs that own assets also must maintain purchase and sales records related to those assets. This documentation should note:
- Date and method the asset was acquired
- The purchase price and any sales fees
- Cost of improvements made over time
- Deductions taken for prior depreciation expense
- Any casualty losses recorded
- How the asset was used in the business
- Date the asset was sold or disposed of
- The sale price when the asset was sold along with any related fees
Payroll Records
For LLCs with employees beyond just the owners (unless the LLC is taxed as a corporation, in which case would include owner salary), payroll-related records also come into play for tax purposes. Documents to retain here include:
- Annual W-2s issued to each worker
- Quarterly and annual payroll tax returns filed
- State payroll tax and unemployment tax returns
- Complete pay records for each employee, such as time sheets
Bottom Line
Keeping accurate, thorough supporting records is crucial for LLC tax filings each year. The right documents validate all tax return figures to avoid issues with the IRS. Maintaining adequate documentation calls for attention to gathering and organizing accurate business records throughout the year. The effort will pay off at tax time when you have everything you need to fill out tax forms and file the correct paperwork with your return.
Tax Planning Tips
- A financial advisor can help you maximize write-offs and avoid costly mistakes on your LLC taxes. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Generate an estimate of how much you’ll owe in state and federal taxes next time you file with the help of SmartAsset’s income tax calculator.
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