Tax Rate For Small Business LLC: Federal, State, and Self-Employment Taxes Explained

A Limited Liability Company (LLC) is one of the most popular business structures for small business owners, as it comes with flexibility, liability protection, and tax advantages.

Unlike corporations, LLCs benefit from pass-through taxation, meaning business profits are taxed at the individual owner’s level rather than at the business entity level. However, the exact tax rate for an LLC depends on its structure and tax classification.

Understanding these tax rules will help you maximize deductions, minimize liabilities, and comply with IRS regulations.

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Table of contents
How LLCs Work How LLC Tax Brackets Work Single-Member LLC Tax Rate Federal vs. State Taxes for LLCs How to Lower Your LLC’s Tax Burden LLC Tax Filing Requirements & Deadlines Final Thoughts

How LLCs Work

LLCs give business owners flexibility in taxation, making them a preferred choice for small businesses. Unlike corporations, which are taxed as separate entities, LLCs are considered pass-through entities by default. This means the business doesn’t pay federal income taxes—profits and losses flow directly to the owners, who report them on their personal tax returns.

The way an LLC is taxed depends on its structure. A single-member LLC is treated like a sole proprietorship, while a multi-member LLC is taxed as a partnership. LLCs also have the option to elect S-corp or C-corp taxation, which can impact how profits are distributed and how much the owners pay in taxes.

Understanding these tax classifications makes you more likely to minimize liabilities and maximize deductions. Whether you’re filing as an individual or planning for business growth, choosing the right tax treatment can save money in the long run.

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How LLC Tax Brackets Work

Since LLCs are typically taxed as pass-through entities, the amount an owner pays in federal income tax depends on their individual tax bracket. Instead of the business paying taxes directly, the owner reports the LLC’s income on their personal tax return, which is taxed at progressive federal rates.

For the tax year 2025, the IRS has adjusted tax brackets to reflect inflation.¹ The federal income tax system remains progressive, increasing rates as income rises. LLC owners fall into the following tax brackets based on their taxable income.

• 10% Up to $11,925
• 12%: $11,926 to $48,475
• 22%: $48,476 to $103,350
• 24%: $103,351 to $197,300
• 32%: $197,301 to $250,525
• 35%: $250,526 to $626,350
• 37%: Over $626,350

Because LLC income passes through to the owner’s personal tax return, an individual earning $80,000 from their LLC would be taxed at the 22% bracket, while another making $200,000 would fall into the 32% bracket.

These rates apply only to taxable income after deductions, meaning LLC owners can strategically lower their tax liability by leveraging business write-offs.

Single-Member LLC Tax Rate

A single-member LLC is the simplest business structure for taxation. The IRS treats it as a disregarded entity, meaning all profits and losses are reported directly on the owner’s personal tax return (Form 1040, Schedule C). No separate business tax return is required.

How Single-Member LLCs Are Taxed

• Income tax: Single-member LLC tax rate depends on the owner’s individual tax bracket for LLC income. Federal tax rates range from 10% to 37% based on taxable income.¹
• Self-employment tax: Owners must pay 15.3% in self-employment taxes (Social Security & Medicare) on net earnings.²
• State taxes: LLCs may owe state income tax or an annual LLC fee depending on the state.

Example Tax Calculation

Let’s say a single-member LLC owner earns $80,000 in net income.

1. Federal income tax: If the owner is in the 22% tax bracket, they owe $17,600 ($80,000 x 22%).
2. Self-employment tax: $12,240 ($80,000 x 15.3%).
3. Total tax liability: $29,840 before deductions.

Multi-Member LLC (LLC Partnership) Tax Rate

A multi-member LLC is taxed as a partnership by default. Instead of the LLC paying taxes directly, profits and losses pass through to each owner, who reports their share on their personal tax return.

How Multi-Member LLCs Are Taxed

• The LLC files Form 1065, an informational return to report business income.
• Each partner receives a Schedule K-1, detailing their share of the LLC’s profits and deductions.
• Owners pay taxes based on their individual federal tax rate LLC bracket.

Self-Employment Tax for Multi-Member LLCs

Like single-member LLCs, partners in a multi-member LLC must pay self-employment tax (15.3%) on their share of net income—unless the LLC elects S-corp taxation.

Example Tax Calculation

If a two-member LLC earns $200,000 and each partner owns 50%:

• Each partner reports $100,000 in income.
• Federal income tax (for a partner in the 24% bracket) = $24,000
• Self-employment tax = $15,300 ($100,000 x 15.3%).
• Total tax liability per partner - $39,300 before deductions.

Tax Rates for LLCs That Elect S-Corp or C-Corp Status

While most LLCs use pass-through taxation, some elect S-corp or C-corp taxation for strategic reasons.

S-Corporation Election

An LLC can be taxed as an S-corp to reduce self-employment tax. Here’s how it works:

• Owners take a reasonable salary, which is subject to payroll taxes.
• The remaining profits are distributed as dividends, not subject to self-employment tax.
• The LLC must file Form 1120-S, but profits still pass through to owners.

Example: Comparing LLC vs. S-Corp Taxation

A business owner earns $120,000 in net profit.

• As a default LLC, they pay a 15.3% self-employment tax on the full $120,000.
• As an S-corp, they take a $70,000 salary and $50,000 in dividends.
• They pay self-employment tax only on their salary, saving money on taxes.

C-Corporation Election

An LLC can also elect C-corp taxation, though this introduces double taxation:

• The business pays corporate tax (21%) on profits.³
• Dividends paid to owners are taxed again at the individual level (15-20%).⁴

When Does C-Corp Taxation Make Sense?

• When the business wants to retain earnings instead of distribution profits.
• If the LLC plans to attract investors, C-corps allow for stock issuance.
• When the corporate tax rate (21%) is lower than the owner’s personal tax bracket.

Federal vs. State Taxes for LLCs

While federal tax obligations apply uniformly to all LLCs in the U.S., state taxes vary widely depending on where the business is registered. Some states impose no income tax on LLCs, while others levy significant taxes, including franchise fees and additional levies.

Federal Tax Obligations for LLCS

At the federal level, LLCs are taxed as passed-through entities by default, meaning business income is reported on the owners’ personal tax returns. Single-member LLCs file using Schedule C, while multi-member LLCs file Form 1065 and provide Schedule K-1s to each member.

LLCs that elect S-corp or C-corp taxation follow separate filing rules, including payroll tax requirements and potential corporate tax liabilities.

State Taxes: What to Expect

Beyond federal taxes, state-level taxation varies based on where an LLC operates. States may impose:

• State income tax: Some states tax LLC income as personal income, while others impose a separate business tax.
• Franchise taxes: Certain states, like California and Delaware, charge an annual franchise tax simply for doing business in the state.
• Annual filing fees: Many states require LLCs to file an annual report with fees ranging from $50 and upwards.

States With No LLC Income Tax

A handful of states do not impose income tax on LLCs at the state level,⁵ including:

• Wyoming
• South Dakota
• Texas
• Nevada
• Washington
• Florida

It’s important to bear in mind that some of these states still charge franchise taxes or business fees. For example, Texas levies a gross receipts tax known as the Texas Franchise Tax.

States With Higher LLC Taxes

On the other hand, states like California, New York, and New Jersey impose higher state taxes and fees on LLCs.

State	State Income Tax on LLCs⁶	LLC Filing Fee⁷
California	Yes (1.5% of net income, $800 min)	$70
New York	Yes (rates up to 10.9%)	$200
New Jersey	Yes (rates up to 10.75%)	$125
Illinois	Yes (rates up to 4.95%)	$150
Texas	No income tax	$300
Florida	No income tax	$125
Delaware	No income tax	$90

Choosing the right state for LLC registration can impact overall tax liability, especially for businesses operating in multiple locations.

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How to Lower Your LLC’s Tax Burden

Reducing your LLC’s tax liability isn’t just about paying less—it’s about keeping more of what you earn while staying compliant with tax laws.

The right strategies can help maximize deductions, reduce taxable income, and ensure your business keeps more of its hard-earned profits.

Maximizing Tax Deductions for Your LLC

One of the most effective ways to lower your tax burden is by taking advantage of business deductions.

LLCs can write off a wide range of expenses, including:

• Business expenses – Rent, office supplies, marketing costs, software, and other operational expenses.
• Home office deduction – If you use part of your home exclusively for business, you can deduct a portion of rent, utilities, and maintenance costs.
• Health insurance premiums – Self-employed LLC owners can deduct health insurance costs for themselves and their families.
• Retirement contributions – Contributions to a Solo 401(k) or SEP IRA are deductible, reducing taxable income while building long-term savings.
• Mileage and vehicle expenses – If you use a car for business, you can deduct mileage or vehicle-related expenses, such as gas and maintenance.

Tracking and documenting these expenses throughout the year can lead to significant tax savings.

Hiring Employees vs. Independent Contractors

LLCs can also lower their burden by carefully structuring their workforce. Hiring independent contractors instead of employees can reduce payroll taxes, as contractors handle their own tax payments.

However, specific IRS guidelines on contractor classification state that misclassifying an employee as a contractor can lead to penalties.

On the other hand, hiring employees allows LLCs to take advantage of business tax credits, such as the Work Opportunity Tax Credit (WOTC), which provides incentives for hiring workers from certain groups.

The right approach depends on your business model, but proper classification is key to avoiding unnecessary tax liabilities.

The Importance of Tax Planning and Working With a CPA

Tax planning is essential for managing an LLC’s finances efficiently. A Certified Public Accountant (CPA) can help:

• Identify new deductions and credits you may not be aware of.
• Structure owner compensation effectively (especially if your LLC elects S-corp taxation).
• Ensure compliance with federal and state tax laws, avoiding costly mistakes.

LLC Tax Filing Requirements & Deadlines

Filing taxes for an LLC comes with different requirements depending on how the business is structured. Whether you operate as a single-member LLC, multi-member LLC, or elect S-corp or C-corp taxation, you’ll need to know what IRS forms are required and any key deadlines to avoid penalties.⁸

Key IRS Forms for LLCs

The IRS treats LLCs as pass-through entities by default, meaning income is reported on the owners' personal tax returns. However, the required forms depend on the LLC’s tax classification:

• Single-Member LLC: Reports income and expenses using Schedule C (Form 1040), similar to a sole proprietorship.⁹
• Multi-Member LLC: Must file Form 1065 (U.S. Return of Partnership Income) and issue Schedule K-1 to each member, detailing their share of profits and losses.
• LLCs Taxed as S-Corps: Must file Form 1120-S (U.S. Income Tax Return for an S Corporation) and provide Schedule K-1 to each owner.
• LLCs Taxed as C-Corps: Must file Form 1120 (U.S. Corporation Income Tax Return) and pay corporate taxes at the federal rate.

Tax Deadlines for LLC Owners

Tax deadlines vary based on how the LLC is structured:

• March 15 – Deadline for multi-member LLCs and LLCs taxed as S-corporations (Form 1065 and 1120-S).
• April 15 – Deadline for single-member LLCs (Schedule C) and LLCs taxed as C-corporations (Form 1120).
• Quarterly Estimated Tax Payments – LLC owners who expect to owe more than $1,000 in taxes should pay estimated taxes on April 15, June 15, September 15, and January 15 of the following year.

If an LLC misses these deadlines, it may face penalties, interest on unpaid taxes, and additional fees from the IRS.

Penalties for Late Filing & Estimated Tax Payments

Failing to file tax forms or pay estimated taxes on time can result in financial penalties:

• Failure to file – A multi-member LLC that misses the deadline for Form 1065 faces a penalty of $220 per partner per month.
• Failure to pay estimated taxes – The IRS may charge interest on unpaid estimated taxes, increasing the total amount owed.
• Failure to deposit payroll taxes (for LLCs with employees) – Businesses can be charged up to 15% of the unpaid tax amount.

Final Thoughts

Choosing the right tax structure for your LLC will set your business up for success in the long run. Strategic tax planning—such as leveraging business deductions, optimizing owner compensation, and working with a CPA—can help business owners reduce their tax burden while fostering long-term financial efficiency.

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Sources

1. IRS releases tax inflation adjustments for tax year 2025
2. Self-employment tax (Social Security and Medicare taxes | IRS)
3. Publication 542 (01/2024), Corporations | IRS
4. Dividend Tax Rate | Nerdwallet
5. LLC Taxes by State | Zen Business
6. State Corporate Income Tax Rates | Tax Foundation
7. LLC Annual Fees by State | LLC University
8. Limited Liability Company Info | IRS
9. 2024 Instructions for Schedule C | IRS