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After you start a Tennessee 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 Tennessee LLC tax filing requirements.
What taxes does a Limited Liability Company pay in Tennessee?
Each LLC has a different tax situation, so the taxes paid for a Tennessee 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 Tennessee?
By default, a Tennessee LLC is taxed by the Internal Revenue Service (IRS) based on the number of Members the LLC has. Then the Tennessee 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 Tennessee 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, Tennessee 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.
Tennessee State Income Tax for Tennessee LLCs
Good news! There is no state income tax in Tennessee. This means you don’t have to file an individual state income tax return each year.
That said, while there is no state income tax in Tennessee, LLCs will most likely need to pay the Tennessee Business Tax, Franchise Tax, and Excise Tax each year.
Tennessee Business Tax
Tennessee imposes a Business Tax on almost every business in Tennessee for the privilege of doing business in the state.
The Tennessee Business Tax is based on your LLC annual gross receipts, primary business purpose, and whether your LLC is a retailer or wholesaler.
This means the amount you’ll owe will vary, but the Business Tax has a minimum payment of $22 per year.
You can register for Business Tax online with the Tennessee Department of Revenue using TNTAP.
And you can check whether your LLC may be exempt from Tennessee Business Tax using the Business Tax Manual from the Tennessee Department of Revenue.
Tennessee Franchise & Excise Taxes
The Tennessee Franchise Tax is based on the net worth or the book value (whichever is greater) of real or tangible personal property owned or used in Tennessee. It is also called a Personal Property Tax.
The amount you’ll owe will vary from year to year, but the Franchise Tax has a minimum required payment of $100 per year.
The Tennessee Excise Tax is based on your LLC net earnings or income for the tax year. Meaning, the amount you’ll pay will vary depending on your business income each year.
You can read more about the Franchise and Excise Taxes from the Tennessee Department of Revenue:
There are also other types of Tennessee 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 Tennessee Department of Revenue for more information about Tennessee state taxes.
Local Income Tax for Tennessee 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.
Tennessee Sales Tax
If you sell products to consumers in Tennessee, you may need to collect sales tax and get a Seller’s Permit.
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 get a Seller’s Permit online from the Tennessee Department of Revenue (DOR) through Tennessee Taxpayer Access Point (TNTAP).
And you can read more information about Tennessee sales tax from these Tennessee DOR resources:
For more information on permits, read Tennessee Business Licenses and Permits.
And if you have any questions about whether you need a Seller’s Permit, you can contact the Tennessee Department of Revenue at 615-253-0700.
Tip: Save time by hiring an expert. We recommend using TaxJar. They'll help you register for, collect, and pay sales tax.
Tennessee LLC Payroll Taxes
If your Tennessee 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 Tennessee, 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.
Note: Since Tennessee has no state income taxes, there are also no state withholding requirements. This means you don’t have to process withholding for employee paychecks at the state level. You do still have to process withholding for employee paychecks at the federal level.
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 Tennessee 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 Tennessee to help make sure you file your federal, state, and local taxes correctly.
Check out our list of accountant recommendations in all 50 states. We recommend phoning a few to see which one you feel most comfortable with, and who understands your business fully.
Tennessee Department of Revenue Contact Information
There are other types of Tennessee business tax that apply to certain industries and types of businesses.
You can contact the Tennessee Department of Revenue at 615-253-0700 for more information about Tennessee state taxes.
Tennessee LLC Taxes FAQs
Yes, all Tennessee LLCs have to pay an annual fee by filing a Tennessee 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 Tennessee Secretary of State. It is not a tax paid to the Tennessee Department of Revenue.
The Annual Report for Tennessee LLCs costs $300 per year. This is paid every year for the life of your LLC.
Tennessee LLC Costs include:
$300 to form your Tennessee LLC (to file your LLC Articles of Organization).
$300 in annual fees (to file your LLC Annual Report).
Maybe – it depends on what type of LLC you have.
Tennessee doesn’t require Single-Member or Multi-Member LLCs to file a state tax return unless they have chosen to be taxed as a Corporation.
If your LLC is taxed as a Corporation, then yes. Your LLC must file tax returns with the IRS and the Tennessee Department of Revenue to pay your Tennessee income tax. Check with your accountant to make sure you file all the correct documents.
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.
Here are the steps for starting an LLC in Tennessee:
- Choose an LLC name and make sure it’s available
- Choose who will be your Tennessee Registered Agent
- File the Tennessee LLC Articles 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 Tennessee
References
IRS: Tax Information for Businesses
Tennessee Department of Revenue: For Businesses
Tennessee Department of Revenue: Unemployment Tax
Tennessee Department of Revenue: Business Tax Articles
Tennessee Department of Revenue: Business Tax Manual
Tennessee Department of Revenue: Income Tax Withholding
Tennessee Comptroller: Office of Small Business Advocate
Tennessee Comptroller: Office of Small Business Advocate – Contact Us
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.
Tennessee LLC Guide
Looking for an overview? See Tennessee LLC
Thank you for these lessons. It has been extremely helpful. I appreciate your work.
It’s great to heat that Ricky! You’re very welcome.
I have an LLC in another state, but since have become a Tennessee resident. What is the process to transfer my LLC to Tennessee? What is the cost?
If it cannot be transferred, what is the simplest, cost-effective process to follow?
Thanks!
Hey Jay, about half of the states allow for domestication/conversion (converting an LLC from one state to another), but this is not the case with Tennessee. Your options are to register your existing LLC as a foreign LLC in Tennessee or form a new Tennessee LLC and dissolve your existing one. The benefit of the foreign LLC filing is it keeps the LLC’s history (EIN, bank account, etc.). Disadvantage is cost since you have to maintain the domestic LLC (Registered Agent, Annual Report, apportioned state income tax return, if applicable) in addition to maintaining the foreign LLC filing in Tennessee. Disadvantage of new Tennessee LLC is you’re “starting over”. Benefits are cost over the years to come. Hope that helps.
Matt, many thanks for the prompt response and content. Greatly appreciated! I hope I can retain my LLC bank account and have the number changed to the new EIN, too.
Hi Jay, if you’re going to form a new LLC and dissolve the old, you’d want to open a new bank account. It can be with the same bank, but if you use the same, it’s not ideal, since you’re treating the LLCs like they’re the same, which they are not. They are two separate entities. Hope that helps.