Tax requirements for Vermont LLCs
Note: Our tax lesson is not as step-by-step as our other Vermont LLC formation lessons, due to the uniqueness and variation among businesses formed in Vermont.
Taxes are not as straightforward as forming an LLC, and therefore, the information below is an overview, and not a comprehensive guide.
We recommend speaking with a few accountants in Vermont to make sure you meet all your state and local tax obligations.
Federal Income Tax
Most LLCs do not pay taxes directly to the federal government. Instead, the members of the LLC are responsible for reporting income or losses on their personal 1040 tax return with the IRS.
LLC income is most often reported on a Schedule C, however, you may need to include additional Schedules, depending on how you derive your income.
By “most LLCs”, we are specifically referring to LLCs taxed in their default status. By default, the IRS taxes Single-Member LLCs like a Sole Proprietorship. And by default, the IRS taxes Multi-Member LLCs like a Partnership.
Alternatively, an LLC may elect to be taxed as a C-Corp by filing Form 8832, or more popularly, an LLC may elect to be taxed as an S-Corp by filing Form 2553 (in order to save money on self-employment taxes).
LLC taxed as an S-Corp
Typically, most accountants recommend that your Vermont LLC’s net income (income minus expenses, but not including salaries) be around $70,000 per year (per Member) plus or minus.
At this net income level, the accounting and administrative costs of maintaining the S-Corp tax election for the LLC are offset by the self-employment tax savings.
Vermont State Income Tax
If you are a resident of Vermont, you’ll need to report your LLC’s income/losses on your state income return. This will be done on Form IN-111.
Again, make sure you speak with your accountant about how to prepare, file, and pay your state income tax.
Here are additional resources:
Vermont Department of Revenue: Personal income tax
Vermont Department of Revenue: Personal income tax forms
Other Taxes in Vermont
Vermont imposes the following taxes:
- Sales and Use Tax
- Corporate and Business Income Tax
- Meals and Room Tax
- Alcoholic Beverage Tax
- Withholding Tax
- Bank Franchise Tax
- Cigarette Tax and Tobacco Products Tax
- Fuel Tax (formerly Fuel Gross Receipts Tax)
- Captive Insurance Premium Tax
- Health Care Claims Tax
- Insurance Premium Tax
- Malt Beverage Tax and Vinous Beverage Tax
- Solar Energy Capacity Tax
- Solid Waste Tax
- Surplus Lines Insurance and Direct Insurance Placement Tax
- Telephone Gross Receipts Tax and Telephone Personal Property Tax
- Wind-Powered Electric Generating Facility Tax
Also, local municipalities have the option to impose an additional 1% local tax on sales (except for sale or rental of motor vehicles), meals and rooms, and alcoholic beverages.
Vermont Tax Resources
- Vermont Department of Taxes: Contact Us
- Vermont Department of Taxes: Business and Corporate
- Vermont Department of Taxes: Create a MyVTax Account
- Vermont Department of Taxes: Help & Resources
Local Taxes for Vermont LLCs
If your business is located in Vermont, you likely need to file and pay state and local taxes, including your city, township, or county.
Again, this depends on where your LLC is located and what type of business you are in. We recommend seeking professional tax assistance.
Calculating your tax obligations federally (with the IRS), on the state-level (with Vermont), and locally (with your city, county, or township), can be complicated and if done improperly can negatively impact your LLC.
We recommend that you get help from a local accountant once your Vermont LLC is formed. We recommend reading our How to Find an Accountant guide and then using Thumbtack or Yelp to find a local professional.
Hiring a tax professional will not only help you keep your Vermont 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 accountants before making your final decision.
Vermont Department of Taxes: Help and Resources
Vermont Department of Taxes: Corporate Income Tax
Vermont Department of Taxes: Business Entity Income Tax
Vermont Department of Taxes: Business Center – Frequently asked questions