As a business owner in Illinois, it's essential to understand the various taxes that apply to your Limited Liability Company (LLC). Failing to comply with tax requirements can lead to penalties and legal issues. In this comprehensive guide, the Lewis CPA team as an expert in tax planning will cover everything you need to know about Illinois LLC taxes, including federal income taxes, Illinois sales tax, and more.
Illinois Income Taxes Update for 2024
According to Illinois Department of Revenue Publication 131-D, the 18th of December, 2023 Withholding Income Tax Payment and Return Dates Illinois Withholding Income Tax Return, the changes for 2024 include:
Monthly Payment and Quarterly Return Schedule
- Must pay electronically or use Form IL-501 by the 15th of each month for amounts withheld in the preceding month.
- Must file Form IL-941 electronically by April 30, 2024, July 31, 2024, October 31, 2024, and January 31, 2025.
Semi-Weekly Payment and Quarterly Return Schedule
- Must pay electronically by Wednesday for amounts withheld on the preceding Wednesday, Thursday, or Friday, and by Friday for amounts withheld on the preceding Saturday, Sunday, Monday, or Tuesday.
- Must file Form IL-941 electronically by April 30, 2024, July 31, 2024, October 31, 2024, and January 31, 2025.
Additionally, the personal exemption amount for tax year 2024 will increase to $2,775. This impacts 2024 Form IL-1040 for individuals, including estimated payments, and 2024 withholding income tax rates for employers.
Key Filing Deadlines for Illinois LLCs
To stay compliant and avoid penalties, it's important to be aware of the key filing deadlines for your Illinois LLC:
- Annual Report: LLCs in Illinois must file an annual report with the Secretary of State each year by the first day of the LLC's anniversary month. Currently, there's a $250 filing fee, plus fees for expedited service if needed.
- Federal Income Tax Return: Single-member LLCs and multi-member LLCs taxed as partnerships must file their federal income tax return (Form 1040) by April 15th of each year. LLCs taxed as S-Corps or C-Corps have different deadlines.
- Illinois State Income Tax: The deadline for filing your Illinois state income tax return is also April 15th.
- Sales Tax: If your LLC collects sales tax, you must file your Illinois sales tax return and pay the taxes collected by the 20th day of the month following the reporting period.
- Payroll Taxes: If your LLC has employees, you must submit payroll taxes (including federal income tax withholding, Social Security, Medicare, and unemployment insurance taxes) on a semi-weekly or monthly basis, depending on your payroll schedule.
Failing to file returns or pay taxes on time can result in significant penalties and interest charges, so it's important to stay on top of all filing deadlines and tax obligations.
Understanding Illinois LLC Pass-Through Taxation
Limited Liability Companies (LLCs) do not pay taxes on their profits. Instead, LLC members are responsible for reporting the financial activity of the LLC on their personal 1040 income tax return
Due to the LLC pass-through taxation, they can pay income taxes on any profits the business earns. Pass-through taxation is a tax system that transfers the responsibility for tax information from the LLC to its members.
There are several benefits to pass-through taxation in Illinois, including:
- Lower taxes for LLC owners, as they may take advantage of lower individual income tax rates than corporate tax rates.
- Simplified tax filing process for LLC owners.
- Protection for LLC owners' assets from creditors.
If you have a pass-through LLC (partnerships or sole proprietorships), you will generally report your share of the LLC's income on Schedule C of your Form 1040. If you have a C corporation LLC, you will generally report your share of the LLC's dividends on Schedule B of your Form 1040.
Each member of a limited liability company needs to pay 12.4% of the LLC's profits for Self-Employment taxes, in addition to 2.9% for Medicare. Furthermore, they must pay the flat rate Illinois State Income Tax, 4.95%.
See the Illinois Department of Revenue for more information on the Illinois LLC tax rate.
How Are LLCs Taxed in Illinois?
Illinois LLCs are typically subject to taxation by the Internal Revenue Service (IRS) and the Illinois Department of Revenue based on the number of LLC members. The state-level taxation by the Illinois Department of Revenue mirrors the taxation at the federal level.
If an LLC has one owner, it will be automatically taxed as a Sole Proprietorship. However, if the LLC has two or more members, it will be taxed as a Partnership by default.Â
If an LLC has one owner, it will be automatically taxed as a Sole Proprietorship. However, if the LLC has two or more members, it will be taxed as a Partnership by default. LLCs can file an additional form to request a different "elective status". If granted, the LLC will be treated by the IRS as a Corporation (S-Corporation or C-Corporation) instead.
Single-Member LLC Taxes (Default Status)
The IRS considers all Single-Member LLCs as disregarded entities regarding taxes. This means an LLC does not need to file a federal income tax return as an individual entity.
Instead, the owner of the Single-Member LLC must file their return and pay the federal income taxes. This can be a disadvantage if the owner's income is already high, as it could push them into a higher tax bracket
How an Illinois limited liability company pays federal income taxes will depend on the owner: if an individual owns the LLC, it will be taxed like a Sole Proprietorship. If another company owns it, it will be treated as a branch/division of the parent company.
Multi-Member LLC Taxes (Default Status)
An LLC with two or more owners will be taxed like a Partnership. In this case, a 1065 Partnership Return must be filed, and a Schedule K-1 is necessary for informing the LLC's owners of their distributive share of profits. The income reported on the K-1 will then be declared on the owners' income tax returns (Form 1040) as a part of their taxes.
Please note: If a multi-member LLC makes distributions to its members that are greater than their basis in their shares, the members may be subject to double taxation. This is because the distributions will be taxed as dividends at the individual level, and the members will also have to pay taxes on the income earned by the LLC before the distributions are made.
Husband and Wife LLC Taxes
In some states, a husband and wife LLC can file taxes as a Single-Member LLC, a Qualified Joint Venture, instead of a Multi-Member LLC. In these cases, the LLC will be treated as a disregarded entity for tax purposes.
This means that the income and losses of the LLC will be passed through to the husband and wife on their tax returns. This can be beneficial for tax purposes, as it can allow the husband and wife to split the income and losses of the LLC in a way that minimizes their overall tax liability.
Unfortunately, this option is not available in Illinois, as this state is not a community property state.
Electing to Have Your LLC Taxed as a Corporation
If an LLC in Illinois chooses to be taxed like a corporation, they have two options: an S corporation or a C corporation. Filing Form 2553 with the IRS allows an LLC to be taxed as an S-Corp, which can provide savings on self-employment taxes for businesses with steady profits.
Filing Form 8832 allows an LLC to be taxed as a C-Corp, which can provide benefits for larger businesses through healthcare fringe benefits and the ability to defer taxation by reinvesting net income.
For example, if you are a new business owner, it is recommended that you wait until your business is established and has consistent revenue before making the tax election to have your LLC taxed as an S Corporation. Once your LLC generates an average of $70,000 in net income per member per year, you should consult your accountant to discuss the possible tax benefits of this option.
LLC Taxed as an S-Corporation (Elective Status)
If you want to save money on self-employment taxes, your LLC in Illinois can file Form 2553 with the IRS and request to be taxed as an S-Corp. This method of taxation can be financially beneficial for businesses that have already established a steady profit.
For example, S corporations are eligible for the Qualified Business Income (QBI) deduction. This deduction allows businesses to deduct up to 20% of their qualified business income from their federal income taxes. In Illinois, the QBI deduction is capped at $50,000 for taxpayers with taxable income of $157,500 or less or $100,000 for taxpayers with taxable income of more than $157,500.
LLC Taxed as a C-Corporation (Elective Status)
Filing Form 8832 with the IRS allows an LLC to be taxed as a C-Corp, which could provide substantial savings for larger businesses through healthcare fringe benefits such as 401(k) plans and profit-sharing plans.
C corporations can also defer taxation on their income by reinvesting it in the business. This can be advantageous for growing companies, as it allows them to use their earnings to finance growth without paying taxes on those earnings.
Illinois State Taxes for LLCs
The government imposes state taxes on individuals, businesses, and properties to raise revenue and fund various programs such as education, healthcare, and transportation.
Illinois State Income Tax
Illinois has a flat income tax rate of 4.95% for both individuals and corporations. This means that LLC members will pay 4.95% of their share of the LLC's profits, regardless of their income level.
If your LLC has employees, you must also withhold Illinois state income tax from their wages and remit these taxes to the Illinois Department of Revenue.
Of course, all employees (including owners) can take advantage of standard deductions and allowances:
- Exemptions: Standard deduction, personal exemption, and dependent exemption.
- Deductions: Mortgage interest deduction, property tax deduction, and charitable deduction.
- Credits: Earned income, child tax, and dependent care credit.
Illinois Sales Tax
If you're selling products to customers in Illinois, you'll need to obtain a Sales & Use Tax license from the Illinois Department of Revenue (IDOR). The license gives you the authority to collect sales tax on items you're selling. It may sometimes be referred to as a seller's permit, wholesale license, reseller permit, sales tax permit/license, or resale license.
The current state sales tax rate in Illinois is 6.25%, but local governments can impose additional sales taxes, which can bring the total rate to as high as 11% in some areas.
To collect sales tax, you must first obtain a sales tax permit from the Illinois Department of Revenue. Then, you’ll need to file sales tax returns and remit the collected taxes to the state on a monthly, quarterly, or annual basis, depending on your sales volume.
Illinois Franchise Tax
Illinois franchise tax was repealed in 2020 but won't take effect until December 31, 2025. Until then, businesses must continue paying the tax, with the amount changing until the repeal is completed. The tax is based on the company's total net worth and is imposed on top of the regular corporate income tax.
For the 2024 filing year, franchise businesses in Illinois must pay a franchise tax of 0.1% of their paid-in capital, up to a maximum of $1 million. However, there is a $100,000 exemption, meaning the minimum franchise tax amount is $25.
Personal Property Replacement Tax
Illinois LLCs are also subject to the Personal Property Replacement Tax (PPRT), which is imposed on the net income of partnerships, corporations, and trusts. The PPRT rate is 1.5% for partnerships and 2.5% for corporations.
Your LLC must file Form IL-1065 (for partnerships) or Form IL-1120 (for corporations) with the Illinois Department of Revenue to report and pay the PPRT.
Local Illinois Taxes
Local taxes in Illinois are taxes that local governments levy, such as cities, counties, and school districts. These taxes fund various local services, such as education, police, and fire protection. Your LLC must collect the 6.25% Illinois state sales tax and any local taxes from areas where you sell.
Take Chicago, for example; they have a 4% local sales tax in addition to the Illinois state sales tax. As a business, your LLC is responsible for collecting and submitting relevant local and state sales taxes accordingly.
Illinois Industry Taxes
Industry taxes are taxes that are levied on specific industries or businesses. They are typically designed to raise government revenue or regulate an industry.
The Illinois Department of Revenue has a variety of industry-specific taxes that may affect your LLC:
- Cigarette Use Taxes
- Coin-Operated Amusement Device Tax
- Dry-Cleaning License Tax
- Electricity Distribution/Invested Capital Taxes
- Electricity Excise Tax
- Energy Assistance Taxes
- Renewable Energy Taxes
- Gas Tax/Gas Use Tax
- Hotel Operators' Occupation Tax
- Illinois Sports Facilities Hotel Tax
- Metropolitan Pier and Exposition Authority Hotel Tax
- Municipal Hotel Tax (Chicago)
- Parking Excise Tax
- Qualified Solid Waste Energy Facility Payments
- Telecommunications Tax
Check out the Department of Revenue for more information on Illinois Industry Taxes.
Federal Taxes for LLCs
The federal government levies federal taxes to help fund services provided at the national level. These taxes include income, payroll, and corporate taxes. Federal taxes usually comprise a more significant portion of the total tax burden and apply to all states.
Federal Self-Employment Tax
Any profits taken out of the businesses by LLC members or managers are subject to self-employment tax. The Federal Insurance Contributions Act (FICA) determines this tax rate of 15.3%, covering Social Security, Medicare, and other benefits.
The Illinois LLC tax rate applies to all the income you withdraw from your business: currently set at 15.3%. You can deduct business expenses when determining the amount of self-employment tax owed.
If you want to reduce the self-employment taxes you pay as an LLC, you can do so by electing S Corporation status. You do this by filing Form 2553, an S Corp Election form, with the IRS.
Consult a tax advisor or accountant for further guidance on decreasing your LLC self-employment taxes.
Federal Income Tax
The federal income tax you owe on the earnings you take out of your LLC depends on your deductions, earnings, current tax bracket, and filing status. Several deductions and credits can be used to reduce a taxpayer's federal income tax liability.
Standard deductions include mortgage interest, state and local taxes, and charitable contributions. Some common credits include the child tax credit, the earned income tax credit, and the education tax credit.
The federal income tax is a complex and ever-changing area of law. Taxpayers should consult with a tax advisor to ensure they are correctly filing their taxes and taking advantage of all the deductions and credits they are eligible for.
Illinois LLC Payroll Taxes
As an employer, you must register with the IRS and the Illinois Department of Employment Security (IDES) to get the necessary accounts and tax ID numbers. You’ll then need to withhold the appropriate taxes from your employee's wages and remit them to the relevant agencies on a regular basis.
This tax is calculated as a percentage of employers' salaries. Payroll taxes fund social insurance programs like Social Security, Medicare, and unemployment insurance.
Payroll tax includes:
- 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
In Illinois, the state unemployment insurance tax rate for new employers is 3.175% on the first $12,960 of each employee's wages (as of 2024). This rate may change over time based on your company's unemployment claims experience.
There are a few reasons why companies withhold payroll taxes. First, it ensures that the government receives the correct amount of taxes from employees. Second, it simplifies the tax filing process for employees. Third, it helps to prevent employees from underpaying their taxes.
Setting payroll, withholding taxes, and filing and submitting taxes to various state and government agencies can be burdensome and complex. Incorrect filing can lead to penalties and fines, so most LLCs hire a payroll company or accountant for help.
See the Illinois Department of Security: Unemployment Taxes & Reporting for more information.
Maximizing Your LLC's Tax Efficiency
To minimize your Illinois LLC's tax liability and maximize its profitability, consider the following strategies:
- Choose the right tax classification: Depending on your business's circumstances, electing to be taxed as an S corporation or C corporation may offer tax advantages over the default partnership or sole proprietorship classification.
- Keep accurate records: Maintain detailed records of all income and expenses to ensure accurate tax reporting and maximize your deductions.
- Take advantage of tax deductions and credits: Claim all available deductions and credits to reduce your taxable income and lower your tax bill.
- Plan for estimated tax payments: If you expect to owe more than $1,000 in federal income taxes or $500 in Illinois state income taxes, you may need to make quarterly estimated tax payments to avoid underpayment penalties.
- Work with a tax professional: Partner with an experienced CPA or tax attorney to develop a comprehensive tax strategy, stay compliant with all filing requirements, and optimize your LLC's tax efficiency.
Tax Deductions and Credits for Illinois LLCs
To minimize your LLC's tax liability, be sure to take advantage of all available tax deductions and credits. Some common deductions for Illinois LLCs include:
- Business expenses, such as rent, utilities, supplies, and equipment
- Employee salaries and benefits
- Travel and vehicle expenses
- Advertising and marketing costs
- Professional fees (e.g., legal and accounting services)
- Depreciation of business assets
In addition to deductions, your LLC may also be eligible for various tax credits, such as:
- Illinois Small Business Job Creation Tax Credit
- Invest in Illinois Research and Development Tax Credit
- Illinois New Markets Development Program Tax Credit
Consult with a ax professional to identify and claim all the deductions and credits available to your LLC.
Trust Your LLC Taxes to the Expert CPA!
It can be a challenge to understand Illinois LLC filing requirements. Furthermore, failing to pay taxes or meet deadlines can harm your business. Therefore, it is recommended that you enlist the assistance of a reliable accountant in Illinois to correctly fill out all your federal, state, and local taxes.
Lewis.cpa is a Chicago CPA firm with over 36 years of experience and over 4000+ happy clients. We help many LLCs maintain accurate bookkeeping while keeping their tax bill as low as possible.
Our certified personal accountants in Chicago can help organize and supervise your finances so your company can flourish. Don't leave your Illinois LLC tax for the last minute. Contact us for a hassle-free tax return experience.
