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After you start a Massachusetts 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 Massachusetts LLC tax filing requirements.
What taxes does a Limited Liability Company pay in Massachusetts?
Each LLC has a different tax situation, so the taxes paid for a Massachusetts 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 Massachusetts?
By default, a Massachusetts LLC is taxed by the Internal Revenue Service (IRS) based on the number of Members the LLC has. Then the Massachusetts 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 Massachusetts 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, Massachusetts 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.
Tip: There are additional expenses to having your LLC taxed as an S-Corporation Most new business owners shouldn’t make this tax election until their business is established and revenue is consistent. Once there is at least $70,000 in annual net income per LLC Member, we recommend speaking to your accountant about this option.
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.
Note: This election is not common. Most of our readers don’t choose to have their LLC taxed as a C-Corporation.
Massachusetts State Income Tax for Massachusetts LLCs
Single-Member LLCs in Massachusetts: 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 Massachusetts: 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 Massachusetts business tax that apply to certain industries and types of businesses.
We recommend hiring an accountant to prepare and file your state income taxes.
You can also contact the Massachusetts Department of Revenue for more information about Massachusetts state taxes.
Local Income Tax for Massachusetts 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.
Massachusetts Sales Tax
If you sell products to consumers in Massachusetts, you may need to collect sales tax and get a Seller’s Permit. You can get a Seller’s Permit from the Massachusetts Department of Revenue (DOR).
A Seller’s Permit 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:
- 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 Massachusetts sales tax using MassTaxConnect.
And you can read more information about Massachusetts sales tax from these Massachusetts DOR resources:
- Massachusetts Department of Revenue: Sales and Use Tax
- Massachusetts Department of Revenue: DOR Sales and Use Tax Forms
- Massachusetts Department of Revenue: Sales and Use Tax for Businesses
For more information on permits, read Massachusetts Business Licenses and Permits.
And if you have any questions about whether you need a Seller’s Permit, you can contact the Massachusetts Department of Revenue at 617-887-6367. Their hours are Monday through Friday from 9am to 4pm, Eastern Time.
Tip: Save time by hiring an expert. We recommend using TaxJar. They'll help you register for, collect, and pay sales tax.
Massachusetts LLC Payroll Taxes
If your Massachusetts 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 Massachusetts, 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 Massachusetts 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 Massachusetts to help make sure you file your federal, state, and local taxes correctly.
Check out our guide on how to find an accountant.
Massachusetts Department of Revenue Contact Information
There are other types of Massachusetts business tax that apply to certain industries and types of businesses.
You can contact the Massachusetts Department of Revenue at 617-887-6367 for more information about Massachusetts state taxes. Their hours are Monday through Friday from 9am to 4pm, Eastern Time.
Massachusetts LLC Taxes FAQs
Do I have to pay an annual fee for my LLC in Massachusetts?
Yes, all Massachusetts LLCs have to pay an annual fee by filing a Massachusetts LLC Annual Report every year. This is separate from the federal, state, and local taxes that you pay.
The LLC Annual Report is filed with the Massachusetts Secretary of the Commonwealth. It is not a tax paid to the Massachusetts Department of Revenue.
The Annual Report for Massachusetts LLCs costs $520 per year. This is paid every year for the life of your LLC.
How much is an LLC in Massachusetts?
Massachusetts LLC Costs include:
$500 to form your Massachusetts LLC (to file your LLC Certificate of Organization).
$520 in annual fees (to file your LLC Annual Report).
Do I need to file a Massachusetts state tax return for my LLC?
Maybe – it depends on what type of LLC you have.
Single-Member LLC taxed as a Sole Proprietorship: No. You only need to file your personal tax return (Federal Form 1040 and Massachusetts Form 1) and include your LLC profits on the return.
Multi-Member LLC taxed as a Partnership: Yes. Your LLC must file an IRS Form 1065 and a Massachusetts Partnership Return (Form 3).
LLC taxed as a Corporation: Yes. Your LLC must file tax returns with the IRS and the Massachusetts Department of Revenue to pay your Massachusetts income tax. Check with your accountant to make sure you file all the correct documents.
How do I know my LLC tax classification?
You can tell your LLC’s tax classification by looking at how many Members are in your LLC.
This is because LLCs receive their tax classification from the IRS based on the number of Members (owners) your LLC has.
If you have one Member, your LLC is taxed as a Sole Proprietorship.
If your LLC has more than one Member, your LLC is taxed as a Partnership.
This is called being taxed in your default status. Meaning, you don’t have to file any paperwork to let the IRS know that’s how your LLC will be taxed because they tax LLCs that way by default.
However, in order for your LLC to be taxed as a Corporation, you or your accountant would have to file paperwork with the IRS letting them know you’ve chosen to be taxed as a Corporation.
And then the IRS would mail you an Approval Letter to confirm you’ve chosen the Corporate tax election for your LLC.
Note: Being taxed as a Corporation is rare for LLCs, so most people don’t need to worry about this.
And if you’re still unsure about how your LLC is taxed, we recommend calling your accountant or the IRS (1-800-829-4933). To speak to a live person at the IRS, press option 1, option 1 again, and then option 3.
How to start an LLC in Massachusetts?
Here are the steps for starting an LLC in Massachusetts:
- Choose an LLC name and make sure it’s available
- Choose who will be your Massachusetts Registered Agent
- File the Massachusetts LLC Certificate of Organization
- Complete and sign an LLC Operating Agreement
- Get a Tax ID Number (EIN) from the IRS
- Open an LLC bank account
- Check whether you need a business or sales tax license in Massachusetts
References
IRS: Tax Information for Businesses
Massachusetts Department of Revenue: Business Taxes
Massachusetts Department of Revenue: Business Use Tax
Massachusetts Department of Revenue: About MassTaxConnect
Massachusetts Department of Revenue: Withholding Taxes on Wages
Massachusetts Department of Revenue: Unemployment Insurance (UI) for Employers
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.
MASSACHUSETTS LLC GUIDE
Follow the lessons below to form your Massachusetts LLC.
Thank you for all of this!
You’re very welcome Elise!
My partner and I filed for our certificate of organization for our LLC on 9/17/2017. We did not make a profit in 2017. Do we need to file federal or state taxes? If not, what forms do we need to file and when?
Thank you
Hi Diana, this will need to be a discussion with a local accountant. If the LLC didn’t earn income and is not writing off expenses, or claiming deductions or credits, you don’t have to file anything federally. That is assuming the LLC is taxed in its default status (LLC taxed as Sole Proprietorship or LLC taxed as Partnership). However, if the LLC is taxed as an S-Corporation or a C-Corporation, then you will have to file federally. Additionally, you may need to file at the state-level and the local-level for the LLC, even with no income or expenses (often called “informational” or “zeroed out” returns), but we don’t provide this level of granularity regarding states, counties, local municipalities, etc (far too many to cover and things vary widely among different types of businesses). Thanks for your understanding. Hope that helps!