LLC taxes explained for small business owners (2026)

A limited liability company (LLC) is a popular choice for small business owners because it protects your personal assets from business debts and obligations. But whether you already run an LLC or are thinking about forming one, it’s just as important to understand how taxes for LLCs work. Knowing your federal and state responsibilities helps you stay compliant, maximize deductions, and avoid costly mistakes.

This 2026 guide highlights IRS rules, key deductions, filing deadlines, and the bookkeeping and accounting software and tools that can help you stay organized and ready for tax time.

Jump to:

• 2025 LLC Tax Updates for the 2026 Filing Season
• What is an LLC, and how is it taxed?
• Single vs. multi-member LLC tax implications
• Federal and state tax obligations for LLCs
• Sales tax responsibilities for LLCs
• LLC tax benefits and deductions
• Common tax mistakes to avoid
• Tools and tips for staying organized
• Staying tax-compliant and protected for the 2026 filing season

2025 LLC Tax Updates for the 2026 Filing Season

The 2026 filing season brings several important tax changes that LLC owners should be aware of. These updates can impact deductions, equipment write-offs, and overall tax planning strategy. Below is a quick overview of the most notable 2025 LLC tax updates to keep in mind.

Permanent 20% QBI deduction 

LLCs and other pass-through businesses can permanently deduct up to 20% of qualified business income, reducing taxable income.

Higher Section 179 expensing limits 

Small businesses can now expense up to $2.5 million in equipment or software purchases under Section 179 (phasing out after $4 million).

What is an LLC, and how is it taxed?

An LLC (limited liability company) is a business structure formed under state law that protects its owners (“members”) from personal liability. For federal tax purposes, the IRS does not treat LLCs as a distinct tax classification, so the way an LLC is taxed depends on its number of members and whether it elects a different tax status.

Default federal tax treatment

By default, LLCs are considered pass-through entities.

Single-member LLC taxation

A single-member LLC is taxed like a sole proprietorship.

Multi-member LLC taxation

A multi-member LLC is taxed like a partnership.

How LLC profits and losses are reported

Profits and losses pass through to the owners and are reported on their individual tax returns. Visit the IRS website for more information about LLC tax obligations.

Electing corporate taxation (optional)

LLCs can choose to be taxed as a C corporation or S corporation by filing the appropriate IRS election. While less common, some businesses make this election to reduce self-employment taxes (S corp) or to retain earnings and attract investors (C corp).

Single-member vs. multi-member LLCs

An LLC can have just one owner or multiple owners, and that difference determines how the IRS views it for tax purposes. In both setups, profits and losses pass through the business and are reported on the members’ personal tax returns.

Single-member LLCs

• One owner: A single-member LLC is owned and managed by one person.
• Taxed like a sole proprietorship: The IRS disregards the LLC as a separate entity for tax purposes.
• How taxes are filed: The owner reports business income and expenses on their personal tax return (usually Schedule C).
• Tax payments: Since taxes aren’t withheld, the owner usually makes quarterly estimated payments to the IRS (April, June, September, January).
• State taxes: The owner must also meet state tax requirements, which vary by location and may include income tax, franchise fees, or annual reports.

Multi-member LLCs

• Two or more owners: A multi-member LLC is owned by more than one person or entity.
• Taxed like a partnership: The LLC itself doesn’t pay income tax; instead, profits and losses flow through to the members.
• How taxes are filed: Each member reports their share of income or losses on their personal return, supported by the LLC’s annual partnership return, IRS Schedule K-1 (Form 1065).
• Tax payments: Members typically make quarterly estimated tax payments to the IRS, just like single-member LLCs.
• State taxes: State-level obligations also apply and differ by jurisdiction—ranging from income tax to annual fees.

Single vs. multi-member LLC tax implications

The IRS taxes LLCs differently depending on whether they have one member or multiple members. The table below highlights the federal tax treatment for each. Keep in mind that state tax obligations vary and may include additional income taxes, franchise taxes, or annual filing fees.

Note: LLCs can also choose to be taxed as a corporation. Electing S corp status may reduce self-employment taxes by splitting income between salary and distributions, while C corp status can make sense for businesses that want to keep profits in the company or attract investors.

Federal and state tax obligations for LLCs

LLCs have both federal and state tax responsibilities. Staying on top of these requirements keeps your business compliant and helps you avoid costly penalties. Here’s how it breaks down:

Federal tax obligations

LLCs have several federal obligations that vary based on how the business is taxed and whether it has employees. Key requirements include:

• Income reporting: Single-member LLCs usually file business income and expenses on Schedule C with their personal tax return. Multi-member LLCs file Form 1065, and each member gets a Schedule K-1 to report their share.
• Self-employment taxes: Members typically pay self-employment tax (Social Security and Medicare) on their share of profits—unless the LLC has elected corporate tax treatment.
• Quarterly estimated payments: Because taxes aren’t withheld automatically, members generally need to make estimated tax payments four times a year (April, June, September, January).
• Employment taxes: If your LLC has employees, you’re responsible for withholding payroll taxes, paying the employer portion, and filing the required federal forms.

State tax obligations

State-level tax requirements for LLCs vary widely, and your obligations depend on where you operate and whether you have employees or taxable sales. Common state obligations include:

• Income and franchise taxes: Many states require LLCs to pay income tax, and some add a franchise tax or minimum fee based on receipts or income.
• Sales tax: If you sell products or certain services, depending on the state, you’ll likely need to collect and remit sales tax to the state and possibly local authorities.
• Local requirements: Some cities or counties require additional local business taxes.
• State payroll taxes: If you have employees, you’ll also need to handle state-level payroll taxes, such as unemployment insurance contributions.

Sales tax responsibilities for LLCs

Sales tax deserves a closer look since it can be one of the more challenging areas for LLC owners. If your business sells products—or in some states, certain services—you may be required to collect and remit sales tax. Here what to do to ensure compliance:

Collect and remit sales tax

As a business owner, you will need to calculate sales tax and collect it from customers at the point of sale and remit it to the appropriate state (and sometimes local) tax authority.

Understand in-state vs. out-of-state sales

You generally must collect sales tax on in-state sales. For out-of-state customers, rules vary, especially if your business has a “nexus” (physical presence, employees, or significant sales) in another state.

Stay current with changing requirements

Sales tax laws and rates change often. Check your state’s tax agency for updates, and consult a CPA or tax advisor if you’re unsure of your obligations.

LLC tax benefits and deductions 

One of the biggest perks of running an LLC is the variety of deductions you can take to lower your taxable income. Whether you’re on your own or have multiple members, many of the basics are the same.

Common tax deductions for LLCs

The following are some IRS-qualified deductible business expenses that you can typically subtract from your taxable income.

• Home office expenses: A portion of rent, mortgage interest, and utilities if you use space in your home exclusively for business.
• Mileage and travel: Business use of your car, using the standard mileage rate or actual costs, and reasonable travel expenses for work trips. For 2025, the standard mileage rate for self-employed and business owners is 70 cents per mile. 
• Equipment and supplies: Computers, phones, software, office furniture, and other tools of the trade. These are often deductible in full or depreciated.
• Health insurance and retirement: Premiums for self-employed health insurance and contributions to qualified retirement accounts, within IRS limits.
• Other business costs: Marketing, advertising, utilities, professional fees, insurance, continuing education, and payroll if you have employees.

How LLC taxes are filed

Most LLCs are treated as pass-through entities for federal taxes. That means the business itself doesn’t usually pay income tax. Instead, profits and losses “pass through” to the members, who report them on their personal returns. When it’s time to file, here’s how single- and multi-member LLCs are handled:

• Single-member LLCs: Income and deductions are reported on Schedule C, which is attached to your personal return (Form 1040).
• Multi-member LLCs: The LLC files Form 1065 and issues each member a Schedule K-1. Members then report their share of profits, losses, and deductions on their own returns.

Common tax mistakes to avoid

Even careful LLC owners can make errors when handling taxes. Here are some common ones to keep in mind.

Mixing personal and business finances

Using the same bank account or card for both personal and business expenses can muddy your records and make deductions harder to support. 

Missing quarterly estimated payments

LLC owners—whether single-member or multi-member—generally need to make estimated tax payments if they expect to owe $1,000 or more to the IRS when filing their return. If you miss payments or pay late, you may face IRS penalties and interest charges, which increase the total tax owed.

Underreporting sales or income

Whether accidentally or by not reconciling bank statements, unrecorded income can lead to IRS issues and missed tax liability.

Ignoring state-specific requirements

State tax rules covering taxes, sales, franchise, payroll, or minimum fees vary widely. If you don’t follow your state’s requirements, you may face penalties, interest, or even risk losing your LLC’s good standing. For example, some states require an annual franchise tax or fee, even if your LLC didn’t generate income that year.

Overlooking deductible expenses

Not tracking or documenting all eligible deductions can mean paying more tax than necessary. Business owners often forget expenses like software, professional fees, or education and training, which can add up to real savings.

Filing late or incomplete returns

Missing deadlines or leaving out required forms can cause delays and trigger penalties. For multi-member LLCs, failing to provide members with Schedule K-1s on time is a common issue.

Tools and tips for staying organized

Good tax prep doesn’t just happen in April. It's something LLC owners should build into their routine all year long. Here are smart ways to stay organized and make tax time far less stressful:

Track everything in one place

Keep all income, expenses, and estimated tax payments in a central accounting software system like QuickBooks. Having a single source of truth makes it easier to see where your money is going and ensures nothing gets missed when it’s time to file.

Automate reports and insights

Use QuickBooks to generate profit & loss statements, deduction summaries, and compliance reports automatically. This cuts down on manual work and reduces the risk of errors.

Keep business and personal accounts separate

Open a dedicated business bank account and credit card for your LLC. In QuickBooks, you can tag and separate transactions, which keeps your records clean and avoids confusion—or unwanted IRS attention.

Capture receipts and mileage on the go

Take advantage of mobile bookkeeping tools, such as the QuickBooks mobile app, to snap photos of receipts, log mileage, and categorize expenses in real time. This ensures you never lose proof of deductions and makes maximizing write-offs easier.

Work with a professional

For complex situations, like choosing a tax election, handling multi-state sales tax, or preparing for an audit, partner with a CPA or accountant. QuickBooks lets you grant your advisor secure access to your books so they can provide real-time guidance.

Leverage estimated tax tools

Quarterly payments can be easy to overlook, but missing them may result in penalties and interest. Using estimated tax tools that track deadlines, calculate what you owe, and send reminders can help you stay on top of payments all year long.

Stay informed on changing sales tax rules

Sales tax rates and requirements change often, and it can be tough to keep up on your own. QuickBooks automatically applies the correct rate, updating rules as they change.

Staying tax-compliant and protected for the 2026 filing season

As an LLC owner, your time is best spent running your business, not second-guessing tax rules. The good news is that 2026 brings opportunities to make the most of available deductions and credits. By keeping up with requirements and planning ahead, you’ll be able to take full advantage of the tax benefits designed for small business owners like you.