So, you’ve decided to form an LLC in Michigan. Congrats! This decision opens doors for many businesses. But now you have another important task on your hands: filing your taxes.
Don’t worry; we’re here to help. This guide will explain everything you need to know about filing taxes for your LLC in Michigan, from which forms you need to file to how to file them.
What Is a Michigan LLC?
A Michigan LLC is a legal business entity formed in Michigan. LLCs are popular because they offer benefits such as personal liability protection and flexibility in how the business is structured and operated.
LLCs differ from other types of businesses, such as corporations, in a few key ways. For one, LLCs do not require a board of directors or shareholders. LLCs also have more flexible tax filing options. They are also different from sole proprietorships in that they offer personal liability protection to the owners.
LLCs provide a sweet spot between liability protection and independence and flexibility. They are an excellent choice for many businesses throughout Michigan, from retailers and service providers to B2B companies.
Types of LLC Taxes in Michigan
Regardless of their structure, all businesses are required to pay federal taxes. LLCs are also required to pay state taxes if they operate in a state that has a state income tax. Additionally, there may be sales and use taxes and other fees such as annual statements.
All businesses, including LLCs, must pay federal income taxes each year. The tax rate for LLCs depends on the amount of income the business earns and how it is taxed.
LLCs can choose to file taxes as a single member LLC, partnership, or corporation. They have these options as a flow-through entity, where the income flows through to the owner, shareholders, or investors rather than the entity itself. An LLC can also make an election to be a taxable entity such as a C corporation.
The LLC then pays federal income taxes on whatever amount passes through its members’ income taxes based on their level of ownership set forth by the company’s operating agreement.
Some LLCs in Michigan choose to take an S Corp tax status to reduce self-employment taxes due on the payments made to members (known as draws or distributions).
If your LLC operates in a state with a state income tax, then your LLC will be required to pay state income taxes. Michigan is one of these states. The tax rate for Michigan LLCs depends on the amount of income the business earns and how it is taxed.
When an LLC chooses to have their businesses treated as a corporation for specific purposes, the company must file its tax return, including state corporate income tax. In Michigan, corporations face a flat rate of 6% tax on all taxable income.
If your LLC isn’t taxed as a corporation, you won’t have to pay this business tax. However, you will have to pay state employer taxes.
State employer taxes are required if your LLC has employees. Register your business through the Department of Treasury (DOT) online or by mail. Start withholding employee income taxes either quarterly or monthly, and remember to file Form 1056 come tax season to reconcile your company’s withholding.
Sales and Use Taxes
Many businesses must collect and remit sales taxes on the products and services they sell. Again, you’ll need to register with the DOT and make periodic payments for the services or goods you’ve sold.
You should get a tax license after applying—hold tight to that as you’ll need it.
You will also be responsible for paying for your annual report, which is required for all LLCs in Michigan. The report costs just $25 and is due each year by February 15th unless your LLC was formed after September 30 of the previous year.
To file your annual statement, you will need to file the following forms:
- Form 1065 (U.S. Partnership Return of Income)
- Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.)
- Federal Form 1120 (U.S. Corporation Income Tax Return)
How to File LLC Taxes in Michigan
Now that you know which taxes your LLC will be required to pay, it’s time to learn how to file them.
To get started, you’ll need the following information:
- Your Employer Identification Number (EIN)
- The total amount of income your LLC earned during the tax year
- How your LLC is taxed (sole proprietorship, partnership, or corporation)
- The total amount of expenses your LLC incurred during the tax year
Once you have this information, you can begin filing your federal and state taxes.
If you are still missing some pieces, take the time to gather them and organize them all in one place. Starting before you have all the documents and information can make the process frustrating, and you may not be able to finish without them.
Step 1: Fill Out the First Page of Form 1065
To file your federal taxes, you must complete and submit Form 1065. This form is for LLCs taxed as partnerships. All LLCs taxed as S Corporations or C Corporations will need to file a Form 1120 instead.
The first page of Form 1065 requires basic information about your LLC, such as your EIN, the tax year you’re reporting, and your LLC’s name and address.
Step 2: Fill Out the Second Page of Form 1065
You will need to provide information about your LLC’s income and expenses on the second page. Include all relevant information, such as the total amount of income your LLC earned and the total amount of expenses your LLC incurred.
Step 3: Complete K-1
You will also need to complete Schedule K-1 to report each member’s share of the LLC’s income, deductions, and credits. Each member should complete their Schedule K-1 and submit it with their tax return.
Step 4: Submit Tax Forms
Once you have completed Form 1065 and Schedule K-1, you can submit them to the IRS. You can do this electronically or by mail.
Paying Employer and Sales and Use Taxes
To pay employer and sales and use taxes, pay periodically through the Department of Treasury.
What Are LLC Tax Filing Requirements?
The tax filing requirements are as follows:
Michigan LLC and Corporation Annual Filing Requirements
Businesses must pay their taxes by April 30th, two weeks after the individual tax filing deadline. They must file annual statements each year by February 15.
Failure to file these documents and taxes incurs a $10 penalty with a maximum $50 fee that starts applying on May 16. Failing to file a report will result in the business being withdrawn or dissolved.
Michigan Business Tax
The Michigan Business Tax is a 4.95% tax imposed on all business income and a .8% gross receipts tax. However, the rate doesn’t apply to insurance companies and financial institutions, which pay a different tax.
You can get a 4-month extension at the end of a tax year to get more time to come up with the business tax owed.
Business in Other States
If you start doing business elsewhere besides Michigan, you will need to get your LLC registered in those states and learn the laws about taxes there. If a state has a state income tax, you may be on the hook for paying more.
Don’t Forget to Pay Federal Taxes Through Individual Members
While most LLCs don’t pay taxes directly, individual members must still file income taxes. While you won’t need to file as a business, you will need to file as an individual and report your annual income if you are a single-member LLC. If there are additional members to your LLC, each person will need to file.
An LLC business structure requires particular forms and steps for paying taxes in Michigan.
These requirements can be complex, so it’s always a good idea to seek professional help from an accountant to ensure you comply.
Have questions or want more information? Feel free to get in touch with MI Tax CPA for filing LLC taxes in Michigan.