How is an LLC taxed by default?

A single-member LLC is taxed as a sole proprietorship by default — profits/losses pass through to the owner Schedule C. A multi-member LLC is taxed as a partnership — profits/losses pass through via K-1s. The LLC pays no federal income tax at the entity level. Both can elect S-corp or C-corp taxation by filing Form 2553 (S-corp) or 8832 (C-corp) with the IRS.

When does an S-corp election save money?

Generally when net business profit exceeds $40,000-$50,000/year. The S-corp election lets owner-operators pay themselves a "reasonable salary" (subject to FICA) and take the rest as distributions (not subject to FICA — saves 15.3% self-employment tax on the distribution portion). Below $40K profit the S-corp savings rarely beat the added payroll-processing and tax-prep cost.

Does my LLC have to file the FinCEN BOI report?

Most LLCs formed before 2024 had to file by 2025-01-01. New LLCs in 2026 file within 30 days of formation. Exemptions: large operating companies (>20 employees + $5M revenue), regulated entities, inactive entities. The current FinCEN BOI status changes — verify at fincen.gov/boi before filing. Penalties for non-compliance are $500/day.

What state taxes does an LLC owe?

Varies by state. Eight states charge a franchise tax (CA $800, DE $300, TN, AL, AR, NY, GA-corp, TX-above-threshold). All states require state income tax filings tied to the owners (not the LLC), unless the LLC elects corporate taxation. Sales tax registration is required if selling taxable goods/services. Some states require gross receipts taxes (NM, WA, OH, NV, OR).

What is the deadline for the LLC annual report?

Varies by state. Most are due on the anniversary of formation, on the 1st or 15th of a specific month, or on March 1, April 1, or July 1. Late penalties run $25-200 plus reinstatement fees if the LLC is dissolved for non-filing. Check your state's SOS or our state-by-state page for your exact deadline.

LLC Tax and Compliance: Federal, State, and Local Costs (2026)

LLC tax and compliance involves three layers: federal (IRS), state (varies wildly), and local (city/county). Federal alone includes self-employment tax (15.3% on net SE earnings up to $168,600), income tax at the owner’s bracket, FinCEN BOI reporting, and either Schedule C, Form 1065, or 1120-S depending on classification. State adds franchise tax in 8 states, income tax in 41, and sales tax in 45. Local adds business license + sales tax permit + workers comp. Total annual compliance cost for a typical small LLC: $500-$2,500 in fees + 15-25 hours of time, or $300-$800 to a CPA.

Reviewed by Soft Crown Editorial Team — fact-checked against primary government sources • Last updated 2026-04-25 • 7 primary sources cited

TL;DR

LLC tax compliance cost in 2026 includes: (1) federal self-employment tax 15.3% on net SE earnings up to $168,600 (the 2026 SSA wage base) plus 2.9% Medicare beyond, plus 0.9% Additional Medicare above $200K single / $250K joint; (2) federal income tax at the owner’s bracket via Schedule C, Form 1065, or 1120-S; (3) FinCEN BOI report within 30 days of formation; (4) state income tax (40 of 50 states + DC tax personal income); (5) state franchise tax in 8 states; (6) sales tax permit + collection if selling taxable goods; (7) local business license; (8) workers comp insurance if hiring W-2 employees in 49 states. Total annual time cost for DIY: 25-40 hours. Total annual fee cost: $500-$2,500 for a typical solo LLC. Outsource to a CPA: $300-$800 to file returns, $1,500-$3,000/yr for full bookkeeping + tax prep.

Federal layer: what every LLC owes

Self-employment tax

15.3% combined Social Security (12.4%) and Medicare (2.9%) tax on net SE earnings. Applies to:

Single-member LLC owners (Schedule SE on Form 1040)
Multi-member LLC partners (Schedule SE for the partner’s K-1 distributive share of partnership net income)

Wage base limits:

Social Security portion (12.4%) capped at $168,600 in 2026 (SSA wage base). Earnings above this are not subject to SS tax.
Medicare portion (2.9%) has no cap. Earnings above $200K single / $250K joint trigger an additional 0.9% Medicare surtax.

Source: SSA 2026 contribution and benefit base, IRS Schedule SE.

For S-corp-elected LLCs: SE tax applies only to W-2 reasonable salary, not distributions. This is the savings mechanism — see /llc-vs-s-corp-cost.

Federal income tax

LLC income passes through to owners’ personal returns at their personal tax brackets:

2026 federal brackets (single)	Rate
$0-$11,925	10%
$11,926-$48,475	12%
$48,476-$103,350	22%
$103,351-$197,300	24%
$197,301-$250,525	32%
$250,526-$626,350	35%
$626,351+	37%

Married filing jointly brackets are roughly 2x single. Source: IRS 2026 inflation adjustments.

Filing forms by classification:

Single-member disregarded → Schedule C on Form 1040
Multi-member partnership → Form 1065 (informational) + K-1 to each partner
S-corp election → Form 1120-S + K-1 to each shareholder
C-corp election → Form 1120, dividends reported on owner’s Form 1040

FinCEN BOI reporting

The Corporate Transparency Act (effective 2024) requires LLCs to report Beneficial Ownership Information to FinCEN within 30 days of formation. Updates within 30 days of any change.

Required for each beneficial owner (25%+ ownership or substantial control):

Full legal name
Date of birth
Residential address
Identifying document number (driver’s license or passport)

Filing: free, online at fincen.gov/boi. Penalty for non-compliance: $500/day civil + up to $10,000 criminal + 2 years imprisonment.

The BOI report is non-public. Only law enforcement can access. The 2024 implementation faced multiple court challenges and stays — verify current applicability before filing.

Quarterly estimated taxes

Required if you’ll owe more than $1,000 in federal income tax for the year. Due:

Q1: April 15
Q2: June 15
Q3: September 15
Q4: January 15

Underpayment penalty if quarterly payments are less than 90% of current-year tax or 100% of prior-year tax (110% if prior AGI > $150K). Source: IRS Estimated Taxes.

State layer: where the fee math gets complicated

State income tax on owners

41 states + DC tax personal income; 9 states have no personal income tax (FL, TX, WA, NV, SD, WY, AK, NH-on-wages-only, TN-only-on-investment-income). LLC pass-through profits are taxed at the owner’s state-of-residence rate.

For LLCs with multi-state operations, “apportionment” rules determine which state taxes which portion of profit. Generally based on a 3-factor formula (sales, payroll, property) or single-factor (sales-weighted, used by 25+ states).

State franchise tax

8 states impose meaningful LLC franchise tax (verified 2026-04-25):

State	Franchise Tax	Source
California	$800/yr min + sliding above $250K rev	ftb.ca.gov
Delaware	$300/yr flat	corp.delaware.gov
Tennessee	$300/yr min + 0.25% net worth	tn.gov/revenue
Alabama	$50/yr Business Privilege Tax	revenue.alabama.gov
Texas	0.375%-0.75% above $1.23M revenue	comptroller.texas.gov
New York	$25-$4,500 sliding (partnerships)	tax.ny.gov
Arkansas	$150/yr	sos.arkansas.gov
Georgia	Net Worth Tax (corp-electing)	dor.georgia.gov

For full franchise tax detail, see /llc-franchise-tax-by-state.

Sales tax permit and collection

45 states + DC tax sales of tangible goods (NH, OR, MT, AK, DE have no statewide sales tax). If you sell taxable goods or services in any taxing state, you need:

A sales tax permit/license — usually free or under $50, registered with the state Department of Revenue
Sales tax collection at the point of sale — rates vary by state and locality, typically 5-10%
Periodic remittance to the state — monthly, quarterly, or annually depending on revenue

Post-Wayfair (2018), states can require sales tax collection from out-of-state sellers based on economic nexus thresholds (typically $100K sales or 200 transactions). Multi-state ecommerce LLCs face significant sales tax compliance complexity.

State-level S-corp surcharges

A few states impose additional taxes on S-corps:

California — 1.5% S-corp franchise tax (minimum $800)
New York — NYS S-corp tax + NYC general corporation tax for some
Illinois — 1.5% Personal Property Replacement Tax for S-corps

These can erode the federal SE tax savings of the S-corp election in those states.

Local layer: the city/county compliance

Business license

Almost every city or county requires a business license for any business operating there. Costs $25-$500/yr. Renewable annually.

Some cities have particularly aggressive business license programs:

San Francisco — Gross Receipts Tax up to 0.45% + payroll expense tax
New York City — Unincorporated Business Tax 4% + various business taxes
Philadelphia — BIRT 1.415% gross + 5.81% net income
Seattle — city B&O on top of state B&O

For city-specific guidance, source the SBA Apply for Licenses and Permits state-by-state guide and contact the city revenue department directly.

Workers compensation insurance

Required in 49 of 50 states if you have W-2 employees (Texas allows opt-out under Texas Labor Code § 406.002). Premiums vary by:

Industry classification (clerical = ~$0.20 per $100 payroll; construction/roofing = $5-$30 per $100)
Total payroll
Claims history

Single-member LLCs with no employees typically don’t need workers comp. For state-specific guidance, see NCCI state workers’ comp pages.

Industry-specific licenses

Restaurants: health permit ($200-$600), liquor license ($300-$1,000+)
Construction: contractor license ($100-$500), bonding requirements
Childcare: state daycare license ($100-$500)
Real estate: brokerage license per agent
Healthcare: state-specific PLLC + facility licenses

DIY vs CPA: real cost comparison

DIY tax filing

Federal Schedule C or 1065: 4-8 hours with TurboTax Business or H&R Block
State income tax: 1-2 hours
Sales tax filings: 1-2 hours quarterly
Franchise tax filings: 30 min annually
BOI: 15 minutes
Total time: 15-25 hours/yr
Total fee cost: $0-$200 (TurboTax fees)

CPA-assisted

Annual federal + state tax prep: $300-$800 for solo LLC
Quarterly estimated tax planning: $100-$300/yr
Sales tax filings: $50-$200/quarter
Total CPA fees: $700-$2,500/yr

Bookkeeper + CPA

Monthly bookkeeping: $300-$800/mo (handles transactions, reconciliations, payroll)
Annual tax prep: $500-$1,500
Total: $4,100-$11,100/yr — overkill for solo LLC, sensible for $500K+ revenue businesses

Compliance calendar for a typical solo LLC

Month 1 (formation)

File Articles of Organization (state SOS)
Get federal EIN (IRS)
File FinCEN BOI report (fincen.gov)
Open business bank account
File for state sales tax permit if applicable
Obtain city business license

Annual (each tax year)

Q1 estimated tax (April 15)
Q2 estimated tax (June 15)
Q3 estimated tax (September 15)
Q4 estimated tax (January 15)
Sales tax filings (monthly/quarterly per state)
Renew city business license
Renew workers comp insurance if applicable
File state annual report (state-specific date)
File franchise tax if applicable

Annual federal

File Schedule C (sole prop / disregarded entity) or Form 1065 (partnership) or 1120-S (S-corp) or 1120 (C-corp) — by April 15 or extended deadline
Form 1099-NEC for any contractors paid $600+ — January 31

Frequently asked questions

How much do I owe in self-employment tax on a $100,000 LLC profit?

15.3% on the first $168,600, so $100,000 × 15.3% = $15,300 SE tax. (You also get to deduct half of SE tax — $7,650 — from your income to compute federal income tax.) S-corp election can reduce this if you split into reasonable salary + distribution.

What’s the cheapest way to handle LLC taxes?

DIY with TurboTax Business ($150-$200) handles federal Schedule C and state pass-through for solo LLCs. Free options like FreeTaxUSA work for simple cases. CPA cost is $300-$800 for tax prep — worth it if your time is worth more than the savings.

Do I have to file a separate tax return for my LLC?

Single-member LLCs (default disregarded entity): no — file Schedule C with your personal Form 1040. Multi-member LLCs (partnerships): yes — Form 1065 (informational) + K-1s. S-corp election: Form 1120-S + K-1s. C-corp election: Form 1120 (separate from personal return).

Can I deduct my home office on my LLC?

Yes, if used regularly and exclusively for business. Simplified method: $5/sq ft up to 300 sq ft = $1,500/yr max. Actual expenses method: proportional rent, utilities, insurance, depreciation. Source: IRS Publication 587.

What if I forget to file the FinCEN BOI report?

Penalty is $500/day civil + up to $10,000 criminal + potential 2 years imprisonment. As of 2026-04-25, FinCEN has been actively enforcing the requirement after multiple court-imposed stays were lifted. Verify current status at fincen.gov/boi.

Do I need to file taxes in every state I do business in?

Generally yes — based on nexus (offices, employees, substantial sales). Foreign qualification + state income tax + state-specific franchise tax in any state where you have nexus. Multi-state operations create significant compliance complexity; CPA help is usually worth it past 3 states.

When do quarterly estimated taxes apply?

If you’ll owe more than $1,000 in federal income tax for the year. Most LLC owners will trigger this above ~$10K net SE income. Underpayment penalty applies if quarterly payments fall below 90% of current-year tax or 100% of prior-year tax.

Sources

IRS Limited Liability Company (LLC) overview — last verified 2026-04-25
IRS Schedule SE (Self-Employment Tax) — last verified 2026-04-25
IRS Estimated Taxes — last verified 2026-04-25
IRS Publication 587 (Home Office) — last verified 2026-04-25
SSA 2026 Contribution and Benefit Base — last verified 2026-04-25
FinCEN Beneficial Ownership Information — last verified 2026-04-25
SBA Apply for Licenses and Permits — last verified 2026-04-25

About the author

Aissam Baidi is the founder and researcher behind llcformationcost.com. Connect on LinkedIn.

Not legal advice. Estimates based on publicly available data from each state’s Secretary of State office. Consult a licensed attorney in your jurisdiction.

Not legal advice. Estimates based on publicly available data from each state's Secretary of State office. Consult a licensed attorney in your jurisdiction.