Arizona LLC Taxes

After you start an Arizona LLC, you have to register for taxes. Paying taxes is an important part of running a business, but figuring out which taxes you need to pay can be a pain.

This lesson will provide you with general resources and the basics of Arizona LLC tax filing requirements.

What taxes does a Limited Liability Company pay in Arizona?

Each LLC has a different tax situation, so the taxes paid for an Arizona LLC varies.

The amount of taxes owed for your LLC depends on rules like:

• how your LLC is taxed
• state and local tax rules
• any sales and use tax requirements, or
• whether you have employees

Additionally, some business types are required to register for industry-specific taxes.

Pro Tip: We recommend hiring an accountant to ensure your LLC meets all of its tax obligations.

We also recommend getting an EIN Number for your LLC. An EIN is also called a Federal Tax Identification Number. They mean the same thing.

Not only will an EIN number be used to open an LLC bank account, but it will also be used for filing taxes with the local, state, and federal governments.

LLC pass-through taxation (Who pays the taxes?)

By default, LLCs don’t pay taxes.

Instead, the LLC Members are responsible for reporting the income (or losses) on their personal 1040 tax return. The Members pay taxes on any LLC profits. This is because of LLC pass-through taxation.

Simply put, pass-through taxation means the responsibility for reporting tax information from an LLC “passes through” the LLC to the LLC Members.

How are LLCs taxed in Arizona?

By default, an Arizona LLC is taxed by the Internal Revenue Service (IRS) based on the number of Members the LLC has. Then the Arizona Department of Revenue honors this and taxes your LLC the same way at the state level.

An LLC with 1 owner (Single-Member LLC) is taxed like a Sole Proprietorship.

An LLC with 2 or more owners (Multi-Member LLC) is taxed like a Partnership.

The above are referred to as the “default status“. Meaning, they are automatically applied based on the number of LLC Members.

Alternatively, you have the option of requesting an “elective status” for your LLC. This is done by filing an extra form with the IRS. Once granted, this elective status means the IRS will treat your LLC as a Corporation (either an S-Corporation or C-Corporation) for tax purposes.

Note: Your Arizona LLC Operating Agreement should also include information about how your LLC is taxed.

Federal Income Taxes

There are several different options for how the IRS can treat your LLC for tax purposes.

Single-Member LLC taxes (default status)

The IRS treats all Single-Member LLCs as Disregarded Entities for tax purposes. This just means that the IRS doesn’t expect the LLC to file its own federal income tax return.

Instead, the owner of the Single-Member LLC files the return (and pays the federal income taxes).

How the LLC pays federal income tax is determined by who owns the LLC:

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

Multi-Member LLC taxes (default status)

If an LLC has two or more owners, the LLC is taxed like a Partnership.

The LLC needs to file a 1065 Partnership Return and issue a Schedule K-1 to the LLC owners.

The K-1s report each owner’s distributive share of profits. And the K-1 income “flows through” to the owners. The income taxes are then paid by each owner on their personal income tax return (Form 1040).

Husband and Wife LLC taxes

In community property states like Arizona, a husband and wife LLC has the option to file taxes as a Single-Member LLC (aka Qualified Joint Venture) instead of a Multi-Member LLC.

On your EIN Application, you can choose to have your husband and wife Arizona LLC taxed as a Qualified Joint Venture. If you already have an EIN for your LLC, you can send a letter to the IRS requesting that your LLC be taxed as a Qualified Joint Venture.

Otherwise, a husband and wife Arizona LLC will be taxed in the default status as a Partnership.

Electing to have your LLC taxed as a Corporation

Instead of the default statuses above, a Limited Liability Company (LLC) can be taxed like a Corporation.

Note: We recommend speaking with an accountant before making a corporate election.

There are two types of corporate elections:

• S-Corporation
• C-Corporation

LLC taxed as an S-Corporation (elective status)

By filing Form 2553 with the IRS, your LLC can request to be taxed like an S-Corporation.

Being taxed as an S-Corp can help businesses (with established profits) save money on self-employment taxes.

LLC taxed as an C-Corporation (elective status)

By filing Form 8832 with the IRS, your LLC can request to be taxed like a C-Corporation.

Being taxed as a C-Corp can help large employers save money on healthcare fringe benefits.

Arizona State Income Tax for Arizona LLCs

Whether or not your LLC itself needs to file an Arizona state income tax return depends on how you’ve chosen to have your LLC taxed at the federal level.

Single-Member LLCs in Arizona

The LLC itself usually doesn’t file a state-level return. However, the owner files a personal state-level return (Arizona Form 140) that includes the LLC’s profits or losses.

Form 140 vs Form 140A vs Form 140EZ

Arizona has a few types of Form 140. You must use Arizona Form 140 if any of the following apply to you:

• Your Arizona taxable income is $50,000 or more (regardless of filing status)
• You are making adjustments to your income
• You itemize deductions
• You claim tax credits (other than the family income tax credit, the credit for increased excise taxes, or the property tax credit)
• 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 on the Arizona Department of Revenue Individual Estimated Tax Payment Form

You can also check out these resources from the Arizona Department of Revenue:

• Individual Income Tax Forms
• Individual Income Tax Highlights

Multi-Member LLCs in Arizona

The LLC itself may need to file an Arizona Partnership Return (Form 165). Additionally, K-1s must be issued to each LLC Member. And the owners file a personal state-level return that include the LLC’s profits or losses.

However, 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, the due date is the 15th day of the 3rd month after the close of the taxable year.

Check out these resources from the Arizona Department of Resources for more information:

• Partnership Forms
• Partnership Highlights

LLC taxed as a C-Corporation

The LLC itself must file a tax return with the Arizona Department of Revenue to pay your Arizona income tax. Check with your accountant to make sure you file all the correct documents, including AZ Form 120.

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

That said, the Arizona DOR no longer requires that you attach your federal Form 1120 with your AZ Form 120.

Due date: April 15th if your LLC taxed as a C-Corp (LLC/C-Corp) runs on the calendar year. If your LLCs runs a different fiscal year, the 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.

The Arizona Department of Revenue has these pages with more information:

• Corporate Income Tax Forms
• Corporate Income Tax Highlights

LLC taxed as an S-Corporation

The LLC itself must file Arizona tax return Form 120S and pay any income tax owed, regardless of their gross receipts, net income, or activity levels.

That said, 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 your LLC taxed as an S-Corp (LLC/S-Corp) runs on the calendar year. If running a different fiscal year, the 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.

And check out the Arizona Department of Revenue Corporate Income Tax Forms page.

Local Income Tax for Arizona LLCs

You and/or your LLC may need to file and pay income taxes with your local municipality (town, city, county, etc.).

We recommend hiring an accountant to prepare and file your local income taxes.

You can also contact your municipality to check on their requirements:

• Arizona Commerce Authority: County Offices
• Arizona Commerce Authority: City/Town Offices

Arizona Sales Tax

If you sell products to consumers in Arizona, you may need to collect sales tax and get a Transaction Privilege Tax (TPT) license. You can get a TPT license from the Arizona Department of Revenue (DOR).

This license allows you to collect sales tax on retail sales in the state where you do business. It’s sometimes also called a:

• sales tax permit/license
• seller’s permit
• resale license
• wholesale license
• reseller permit

They all mean the same thing, but the state of Arizona usually refers to it as the Transaction Privilege Tax license.

You can read more about the Transaction Privilege Tax license, whether you need one, and how to get one in our Arizona Transaction Privilege Tax guide.

Arizona LLC 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.

For more Arizona payroll tax resources, please see the references section at the bottom of this page.

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 accounting software we recommend is Quickbooks Online.

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. And 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 your federal, state, and local taxes correctly.

Check out our guide on how to find an accountant.

Arizona Department of Revenue Contact Information

There are other types of Arizona business tax that apply to certain industries and types of businesses.

You can contact the Arizona Department of Revenue at (602) 255-3381 for more information about Arizona state taxes.

Arizona LLC Taxes FAQs

Matt Horwitz

Founder & Educator, LLC University®

Matt Horwitz has been the leading expert on LLC education for the past decade. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC that other companies weren't offering. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
 
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.