Note: Our tax lesson is not as step-by-step as our other Forming an LLC in Rhode Island lessons, due to the uniqueness and variation among businesses in Rhode Island. Taxes are usually not as straightforward as forming an LLC in Rhode Island, and therefore, the information below is an overview, and not a comprehensive guide.
We recommend working with a tax professional in Rhode Island to make sure you meet all your federal, state and local tax filing obligations. We recommend using Thumbtack and speaking to a few different accountants before hiring one.
Additionally, effective July 1st 2019, as per H5646B, if your LLC fails to meet all of its tax filing requirements, your LLC may be subject to revocation (being shut down by the state).
Do it yourself in Rhode Island
Depending on your industry, where your Rhode Island LLC is located, how you are taxed by the IRS, and whether or not you have employees, will determine which additional taxes and forms are due.
Some examples of other taxes and forms due are:
- Sales and use tax
- Employer’s withholding tax
- Tobacco tax
- Property tax
- Alcohol tax
- Fuel tax
- Local taxes
The Rhode Island Division of Taxation has a partial list of taxes your LLC may need to pay depending on the kind of business you’re engaged in.
Your Rhode Island LLC and Federal Taxes with the IRS:
By default, single-member Rhode Island LLCs are taxed as Sole Proprietorships by the IRS, and by default, multi-member Rhode Island LLCs are taxed as Partnerships by the IRS.
The bulleted list above refers to state and local taxes, not federal taxes filed with the IRS.
Remember, the income/losses from your Rhode Island LLC will “flow through” to your personal 1040 tax return on a Schedule C, as well as additional Schedules depending on how you derive your income.
Tip: The above language often confuses a lot of people. Notice that we said “taxed as”. This means, in the eyes of the law, your Rhode Island LLC is still a separate legal entity from you, but the IRS is treating your LLC differently, just for tax purposes.
Technically, your Rhode Island LLC is still a “legal entity” with the state and the law, but your LLC is a “tax entity” with the IRS.
Additionally, your tax professional may recommend that your Rhode Island LLC be taxed as a Corporation with the IRS. In that case, your LLC can be taxed as a C-Corp or your LLC can be taxed as an S-Corp. You’ll need to discuss this with your accountant though, as this usually only works for certain types of businesses, and those businesses that are making $80,000 – $100,000 per year (or more).
Rhode Island LLC Annual Charge ($400)
As per section 44-11-2(e), your Rhode Island LLC also has to pay an Annual Charge of $400 to the RI Division of Taxation. Payment is mandatory every year. Meaning, it’s due regardless of whether or not your LLC engaged in business activities or earned profits.
For more information, please see:
Rhode Island Division of Taxation: Entity Filing Requirements
Rhode Island Division of Taxation: Rhode Island tax obligations for LLCs (Notice 2020-03)
Rhode Island Division of Taxation: 2020 Rhode Island Business Corporation Tax
Our Recommendation for Rhode Island LLCs
Calculating your tax obligations in Rhode Island (and with the IRS) can be complicated and if done improperly can negatively impact your LLC.
Hiring a tax professional will not only help you keep your Rhode Island LLC in compliance, but it will also give you an advisor to go to for other business questions.
You’ll want someone who’s a good fit for your company, makes you feel comfortable, and is willing to answer all of your questions. It should be someone you like personally as well as professionally. We recommend talking with at least 2-3 people before making your final decision.