Illinois LLC Taxes

After you start an Illinois LLC, there are two main types of ongoing filings. The first is the Annual Report with the state, and the other is 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 Illinois LLC tax filing requirements.

What taxes does a Limited Liability Company pay in Illinois?

Each LLC has a different tax situation, so the taxes paid for an Illinois 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 Illinois?

By default, an Illinois LLC is taxed by the Internal Revenue Service (IRS) based on the number of Members the LLC has. Then the Illinois 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 Illinois 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

You may have heard that in some states, 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.

This is true for community property states (like Texas). That said, Illinois isn’t a community property state, which means Qualified Joint Ventures are not available in this state.

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.

Illinois State Income Tax for Illinois LLCs

Single-Member LLCs in Illinois: The LLC itself usually doesn’t file a state-level return. However, the owner files a personal state-level return that includes the LLC’s profits or losses.

Multi-Member LLCs in Illinois: The LLC itself may need to file a Partnership return at the state-level. And the owners file a personal state-level return that include the LLC’s profits or losses.

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

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

Personal Property Replacement Tax

Illinois LLCs are also required to pay 1.5% of their net income to the Illinois Department of Revenue. This is called the Personal Property Replacement Tax.

Illinois Tax ID Number

All businesses in Illinois should get an Illinois state-level Tax ID number.

You can register your LLC for an Illinois Tax ID number and business taxes online through MyTax Illinois.

You can also contact the Illinois Department of Revenue for more information about Illinois state taxes.

Local Income Tax for Illinois 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.

Illinois Sales Tax

If you sell products to consumers in Illinois, you are required to collect sales and use tax and get a Sales & Use Tax license. You can get a Sales & Use Tax license from the Illinois Department of Revenue (IDOR).

A Sales & Use Tax license is the license that allows you to collect sales tax on retail sales in the state where you do business. It’s sometimes also called a:

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

They all mean the same thing and we may use these terms interchangeably.

You can register for Sales & Use Tax online through MyTax Illinois.

And you can read more information about Illinois sales and use tax from these IDOR resources:

• Sales Taxes
• Sales & Use Taxes
• Tax Rate Database

For more information on permits, read Illinois Business Licenses and Permits.

And if you have any questions about whether you need a Sales & Use Tax license, you can contact the Illinois Department of Revenue: Taxpayer Assistance Line at 217-782-3336.

Illinois LLC Payroll Taxes

If your Illinois 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 Illinois, 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.

You can read more about Illinois payroll taxes here:

• Illinois Department of Revenue: Withholding Income Tax
• Illinois Department of Employment Security: Unemployment Taxes & Reporting

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 Illinois to help make sure you file your federal, state, and local taxes correctly.

Check out our guide on how to find an accountant.

Illinois Department of Revenue Contact Information

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

You can contact the Illinois Department of Revenue: Taxpayer Assistance Line at 217-782-3336 for more information about Illinois state taxes. Their hours are Monday through Friday from 8am to 5pm, Central Time.

Illinois 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.