Arizona Taxes

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Arizona LLC Taxes

How to form an LLC in Arizona
This Quick Start Guide is a brief overview of how to form an LLC in Arizona.

Detailed Lessons:

 

Arizona LLC Costs:
Arizona LLC formation: $50 (regular) or $85 (expedited)
Arizona LLC annual report: none

Need help?
Hire a reliable service to form your Arizona LLC:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)

(check out Northwest vs LegalZoom)

Note: Our tax lesson is not as step-by-step as our Forming an LLC in Arizona lessons, due to the uniqueness and variation among businesses. Taxes are not as straightforward as forming an LLC and things vary widely. Therefore, the information below is an overview, and not a comprehensive guide. Furthermore, there are likely additional forms and schedules you need to file. The information below covers the basics. Thank you for your understanding.

We recommend speaking with a few accountants in Arizona to make sure you meet all your federal, state, and local tax obligations. For tips on finding an accountant for your LLC, please see our how to find an accountant guide.

Federal Taxes for your Arizona LLC

By default, the IRS taxes the LLC based on the number of LLC Members (owners).

An Arizona LLC with 1 Member is taxed as a Disregarded Entity by the IRS:

  • If the LLC owner is an individual, the LLC is taxed like a Sole Proprietorship
  • If the LLC owner is another company, the LLC is taxed like a branch/division of the parent company

In LLC/Sole Proprietorship taxation, the Arizona LLC doesn’t file its own federal return, but rather, the LLC owner reports and pays the taxes on their personal income tax return (Form 1040). The profits and losses from the business will likely be reported on a Schedule C. You may also need to include additional Schedules and Forms, depending on how you earn income.

An Arizona LLC with 2 or more Members is taxed like a Partnership by the IRS.

In LLC/Partnership taxation, the Arizona LLC is a tax-reporting entity and has to file its own federal informational return (Form 1065) and issue K-1s to each Member (reporting their share of the profits). The K-1 is then attached to the owner’s personal income tax return (Form 1040).

The above types of taxation are referred to as the “default” tax classifications. You don’t have to do anything to “get them”. When you apply for your EIN, you tell the IRS how many LLC Members there are and that’s how they know what type of tax return to expect.

Keep in mind that your LLC is still a separate legal entity from its owners. Just because the IRS taxes your Arizona LLC like a Sole Proprietorship or like a Partnership doesn’t mean your LLC is a Sole Proprietorship or a Partnership. No matter how the IRS taxes your LLC, your personal assets are still protected.

Besides the “default” tax classifications, you can request that the IRS tax your Arizona LLC like a Corporation instead.

There are two types of corporate taxation available for LLCs:

  • LLC taxed as a C-Corp
  • LLC taxed as an S-Corp

In LLC/C-Corp taxation, the Arizona LLC is treated like a C-Corporation for federal tax purposes. This is not a very common election though, because an LLC/C-Corp faces double taxation. This election usually only makes sense for large companies that are looking to raise money, go public, or have large healthcare expenses. You can find more information here: LLC taxed as a C-Corp.

In LLC/S-Corp taxation, the Arizona LLC is treated like an S-Corporation for federal tax purposes. This is a more popular election for saving money on self-employment taxes. It usually makes sense once the LLC’s net income is around $70,000 per year. This is usually not a good idea for businesses that are just starting out and haven’t generated a lot of profit yet. You can find more information here: LLC taxed as an S-Corp.

No Arizona “Corporate” Taxes for Default LLCs

Applicable to:
• LLC taxed as Sole Proprietorship
• LLC taxed as Partnership

If your LLC is will be taxed in its default status with the IRS, the state of Arizona doesn’t impose a state-level income tax on your LLC. Instead, the profits from your LLC flow-through to the owners (Members) and you’ll be responsible for paying state income taxes on the personal level.

“Default LLC”: This means your LLC didn’t make a special election to be taxed as a Corporation (C-Corp or an S-Corp) with the IRS. Instead, as mentioned above, Single-Member Arizona LLCs will be taxed as a Sole Proprietorship and Multi-Member Arizona LLCs will be taxed as a Partnership.

However, if your LLC is taxed as a Partnership, you still need to file an informational return; Form 165 and issue K-1s (further details below).

Arizona Resident Personal Income Tax Return (Form 140)

Applicable to: All Arizona LLCs where Members are Arizona residents.

Due date: April 15th if you’re a calendar year filer. If you’re a fiscal year filer, due date is the 15th day of the 4th month after the close of your taxable year.

Form 140 vs Form 140A vs Form 140EZ:
You must use Form 140 if any of the following apply to you:

  1. Your Arizona taxable income is $50,000 or more (regardless of filing status)
  2. You are making adjustments to your income
  3. You itemize deductions
  4. You claim tax credits (other than the family income tax credit, the credit for increased excise taxes, or the property tax credit)
  5. You are claiming estimated payments

Estimated taxes: If you meet the threshold for the current tax year, as a full year resident, you must file quarterly estimated tax payments. Your Arizona gross income is the same as your federal adjusted gross income (AGI). See the “instruction” document for threshold information.

Individual income tax highlights: https://azdor.gov/forms/individual-income-tax-highlights

Individual income tax forms: https://azdor.gov/forms/individual

Arizona Partnership Income Tax Return (Form 165)

Applicable to: LLC taxed as a Partnership (“LLC/Partnership”)

As mentioned above, although there is no income tax that must be paid, the Arizona Department of Revenue still requires all Multi-Member LLCs taxed as a Partnership to file an informational return, called Form 165. Additionally, K-1s must be issued to each LLC Member.

No federal return attached: You no longer need to include your federal Partnership return (Form 1065, federal Schedules K-1, and federal supporting schedules) with your Arizona Form 165 Return.

Due date: March 15th if LLC/Partnership runs on the calendar year. If running a different fiscal year, due date is the 15th day of the 3rd month after the close of the taxable year.

Partnership highlights: https://azdor.gov/forms/partnership-highlights

Partnership forms: https://azdor.gov/forms/partnership-forms

Arizona Corporation Income Tax Return (Form 120)

Also known as: Corporate Income Tax

Applicable to: LLC taxed as a C-Corporation (“LLC/C-Corp”)

This tax return (and the income tax payment) must be filed and paid by all LLC/C-Corps, regardless of their gross receipts, net income, or activity levels.

Currently, the tax rate is 4.9%.

No federal return attached: The Arizona Department of Revenue no longer requires that you attach your federal Form 1120 with your AZ Form 120.

Due date: April 15th if LLC/C-Corp runs on the calendar year. If running a different fiscal year, due date is the 15th day of the 4th month after the close of the taxable year.

Estimated taxes: If your LLC/C-Corp estimates income tax liability to be $1,000 or more, you must file quarterly estimated tax payments.

Corporate income tax highlights: https://azdor.gov/forms/corporate-income-tax-highlights

Corporate tax forms: https://azdor.gov/forms/corporate-tax-forms

Arizona S-Corporation Income Tax Return (Form 120S)

Applicable to: LLC taxed as an S-Corporation (“LLC/S-Corp”)

This tax return (and the income tax payment) must be filed and paid by all LLC/S-Corps, regardless of their gross receipts, net income, or activity levels.

Currently, the tax rate is 4.9%.

No federal return attached: The Arizona Department of Revenue no longer requires that you attach your federal Form 1120S with your AZ Form 120S.

Due date: March 15th if LLC/S-Corp runs on the calendar year. If running a different fiscal year, due date is the 15th day of the 3rd month after the close of the taxable year.

Estimated taxes: If your LLC/S-Corp estimates income tax liability to be $1,000 or more, you must file quarterly estimated tax payments.

Corporate tax forms: https://azdor.gov/forms/corporate-tax-forms

Paying taxes online

Arizona taxes can be filed online via AZTaxes.gov:
https://www.aztaxes.gov/Home/Page

Frequently Asked Questions:
https://www.aztaxes.gov/Home/FAQ

AZTaxes.gov instructional videos:
https://www.youtube.com/channel/UCU24DUTsClUNCEXk9L-9YEg/videos

Transaction Privilege Tax and TPT License

Also referred to as: Sales & Use Tax

What is a Transaction Privilege Tax?
It’s a tax on an LLC for the privilege of doing business in the state of Arizona.

Transaction Privilege Tax information:
https://azdor.gov/transaction-privilege-tax-tpt
https://azdor.gov/transaction-privilege-tax/tpt-license
https://azdor.gov/transaction-privilege-tax/tax-rate-table
https://azdor.gov/transaction-privilege-tax/reporting-guide

TPT License:
If your Arizona business is subject to TPT, you must get a TPT License in addition to filing returns and paying the applicable taxes.

Retail sales are subject to TPT:
https://azdor.gov/transaction-privilege-tax/retail-sales-subject-tpt

Businesses that perform the following activities are also subject to TPT:
https://azdor.gov/transaction-privilege-tax/do-i-need-tpt-license

There are 3 ways to apply for a TPT License:

  1. Online
  2. By mail
  3. Walk-in

Online: https://www.aztaxes.gov/Home/Register (instructions)

By mail: Use Form JT-1 (“Joint Tax Application”)

Walk-in: There are 3 walk-in locations (Phoenix, Mesa, and Tucson). You’ll also use Form JT-1. You can find the walk-in addresses here: https://azdor.gov/transaction-privilege-tax/tpt-license/applying-tpt-license

Approval time: It takes about 3-5 business days before a TPT License will be issued to your Arizona LLC.

Why is JT-1 called the “Joint Tax Application”?
Because in addition to registering your LLC for Transaction Privilege Tax (and issuing you a TPT License), if you’re an employer, the JT-1 will also register your LLC for Employer Withholding and Unemployment Insurance with the Department of Economic Security (DES).

TPT Forms: https://azdor.gov/forms/tpt-forms

TPT Web Upload Fact Sheet: https://azdor.gov/sites/default/files/media/ESERVICES_2017_factsheet-tpt-web-upload.pdf

TPT & Use Tax Rate Look-Up Tool: https://www.aztaxes.gov/Home/Address/

TPT License Renewal: TPT Licenses need to be renewed every year by January 1st. For more information, please see here: https://azdor.gov/transaction-privilege-tax/tpt-license/renewing-tpt-license

Reseller Certificate: If you are buying products in Arizona that will be used for resale, you can present your vendors with a Reseller Certificate. After you get your TPT License Number, you can then complete a Form 5000A (Arizona Resale Certificate) in order to provide to vendors. You can download Form 5000A here: https://azdor.gov/forms/tpt-forms/arizona-resale-certificate

Need help with TPT/sales & use tax? You can automate your Arizona TPT/sales tax filings with TaxJar. TaxJar helps online sellers as well as brick-and-mortar businesses in Arizona.

TaxJar also has a helpful guide on Arizona sales tax: Arizona Sales Tax Guide for Businesses

Payroll Taxes

If your Arizona LLC will have employees, you must submit payroll taxes. Payroll taxes are essentially a group of taxes and filings, including:

  • Federal income tax withholding
  • State income tax withholding
  • Social Security tax
  • Medicare tax
  • Federal unemployment taxes (FUTA)
  • State unemployment taxes (SUTA)
  • Local/county deductions
  • Employee deductions

As an employer in Arizona, you need to set up payroll, withhold payroll taxes from employees’ paychecks, and then submit those filings and taxes to various state and government agencies.

Although you can file payroll taxes yourself, the calculations can be burdensome and very complex. And if done improperly can lead to penalties and fines. Most people hire a payroll company or ask their accountant for help.

Our favorite payroll company is Gusto Payroll. They’ll automate and take care of your payroll taxes.

Local and Other Taxes

Remember, the information above doesn’t cover all types of taxes in Arizona. You and/or your LLC may be responsible for other tax filings and we recommend working with an accountant.

Working with an accountant

As you can see, figuring out the different types of taxes you owe can be complicated, let alone how to properly fill out all the forms. Doing taxes improperly or missing deadlines can be harmful to your business.

We strongly recommend working with an experienced accountant in Arizona to help make sure you file both your federal, state, and local taxes correctly.

Check out our how to find an accountant article. You can also find accountants using Thumbtack.

Managing your books & staying organized

You can keep track of income and expenses using Microsoft Excel or Google Sheets, or you can use software to help automate things and save time.

The most popular accounting software is QuickBooks Online.

Arizona Department of Revenue

If you have any questions about taxes, you can contact the Arizona Department of Revenue at 602-255-3381. Their hours are Monday through Friday from 8am to 5pm.

Matt Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.

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