By The Wyoming LLC Attorney Team
Feb 13, 2023Starting an LLC in Nevada offers various tax advantages and flexibility. Nevada LLCs are typically treated as "pass-through entities," with members paying personal income tax. Single-member LLCs are taxed as sole proprietorships, while multi-member LLCs are treated as partnerships. Nevada doesn't impose a state income tax. However, businesses with employees may be subject to Modified Business Tax (MBT). Understanding tax requirements and filing processes is essential for Nevada LLCs.
Setting up an LLC is often seen as the most efficient way to reduce your business’s tax burden while protecting yourself from liabilities and debts.
Nevada has unique taxation laws that govern LLCs and other business entities, and it’s essential to understand how your LLC might be taxed in Nevada. Let’s take a look at Nevada LLC taxes and how different types of LLCs, including Single Member LLCs and Anonymous LLCs, are taxed in this state. Understanding the requirements, the fees associated with forming an LLC, the benefits of an LLC structure, the role of an operating agreement, and the necessity of filing an annual report are crucial steps in this process.
A limited liability company, or an LLC, is a business entity unique to the United States. This business structure protects its members from debts and liabilities while providing additional tax flexibility. If you run an LLC, you can choose how your company is taxed based on which tax status is most efficient for you.
LLCs effectively combine the properties of partnerships and corporations to offer their members more protection and flexibility. A Nevada LLC's membership structure can be either single-member or multi-member, contingent on the number of founders participating in its establishment. Starting a single-member LLC is a tax-efficient alternative to starting a sole proprietorship.
A limited liability company is not a separate tax entity like a corporation, instead, it’s what the IRS calls a ‘flow-through entity’ or a ‘pass-through entity’, like a partnership or a sole proprietorship. This means that any income that the business makes can be passed straight to its owners, shareholders, and investors, and the entity itself is not taxed on these profits. Instead, the LLC’s members pay personal income tax on their income.
Most Nevada LLCs opt to be taxed as a flow-through entity, which is the default position for LLCs. When you set up an LLC, the IRS will tax your Nevada LLC by default on the basis of how many members your LLC has. You don’t have to do anything to secure these tax statuses for your LLC.
If your LLC has a single member, your LLC will be taxed as a disregarded entity. If the single member of your LLC is an individual, the IRS will tax your LLC as a sole proprietorship, but if the single member of your LLC is another company, your LLC will be taxed as a branch of its parent company.
Multi-member LLCs are taxed by default as a partnership. If your LLC is taxed as a partnership, your LLC has to file its own federal information return and issue K-1s to each LLC member which is attached to the owner’s personal income tax return.
One of the benefits of operating under the LLC structure is that this entity type offers flexible options for LLCs with different needs and goals. As an LLC owner, you can request that the IRS treat your LLC like a corporation instead of using the default tax statuses above. It’s possible for your Nevada limited liability company to be taxed as a C-Corp or as an S-Corp.
If you opt to be taxed as a C-Corporation for federal tax purposes, you’ll face double taxation because your LLC will pay corporation tax and your members will pay income tax on their salaries. This election is usually only made by larger LLCs that want to raise more money, go public, or fund significant healthcare expenses.
If you opt to be taxed as an S-Corp for federal tax purposes, your LLC may be able to save money on self-employment taxes. If your LLC’s net income is more than $70,000 per year, you could save money by electing for S-Corp taxation. For smaller businesses, it’s advisable to stick with the default flow-through taxation options.
If you choose to operate your LLC under the default taxation options available, the only tax that you’ll pay is income tax. Each member of your LLC will pay income tax on the LLC’s profits, although the taxation system is slightly different depending on whether you’re operating a single-member or multi-member LLC.
The IRS treats single-member LLCs as sole proprietorships for the purposes of taxation provided that the sole member of the LLC is an individual. The result of this is that the LLC itself doesn’t pay taxes and doesn’t have to file a tax return with the IRS.
If you run a single-member LLC, instead you will pay taxes on the personal income that you make as an LLC member. The amount you pay depends on the amount of income you make. When you run an LLC, you’ll pay any federal, state, and local income taxes that you owe. Federal tax rates are between 10% and 37% depending upon the amount of income you make.
Nevada currently has no state income tax rate, although it’s important to note that this only applies to Nevada residents. If you register an LLC in Nevada but you reside and do business in another state, you will have to file an information return in Nevada and pay your taxes in the state that you reside in.
If you’re operating a multi-owner LLC, the IRS treats this by default as a partnership for tax purposes. Like single-member LLCs, multi-member LLCs don't pay taxes on any business income; instead, the LLC owners each pay personal income tax on their share of the LLC's profits.
The same state income tax rules apply for multi-member LLCs as for single-member LLCs, which means that federal income taxes between 10% and 37% are due, but no state income tax is charged unless you reside outside of Nevada.
While businesses in Nevada don’t have to pay any state income tax, this doesn’t mean there are no state taxes to pay at all. Business tax in Nevada is a type of tax that applies to employers including LLCs with employees. It’s known as MBT or Modified Business Tax.
If your Nevada LLC has no employees, you will not have to pay MBT. However, if your LLC has employees, you will also have to pay MBT. This business tax is based on the gross wages, including tips, that your LLC pays its employees minus the cost of any healthcare benefits that you cover.
Your LLC should be automatically registered to pay MBT in Nevada when you register for unemployment compensation with the Nevada Employment Security Division.
If you operate an LLC, you have options relating to how your LLC is taxed. This is one of the biggest benefits of structuring your company as an LLC. The two types of tax statuses that you can choose as an LLC are:
– S-Corp status – C-Corp status
It’s worth bearing in mind that if you do elect to change your tax treatment to one of these, you cannot then apply to change your tax treatment again for another five years. It’s important to only change your taxation status if you’re sure that it’s the right structure for your company both now and in the future.
S-Corp taxation is another type of flow-through taxation that means that the LLC itself is not taxed on profits. The owners of an S-Corp pay personal income tax on the profits of the company, after which they can withdraw those profits as tax-free dividends.
The distinction between an S-Corp and a partnership lies in how they handle FICA tax. When your LLC operates as an S-Corp, its members are required to pay themselves a reasonable wage, on which they must pay both FICA tax and income tax, but the rest of the profits of the business are subject to only income tax.
This means that, for businesses with a higher turnover, the savings made from FICA tax can be significant. S-corporation taxation status is often a popular choice for small and mid-sized LLCs that are starting to turn over higher profits of around $70,000 a year or more.
All of the biggest publicly traded American corporations are C-Corporations. If your LLC expands so that the number of investors exceeds the S-Corp limit of 100 or you require a different share class structure, a C-Corp is the only taxation option left.
C-Corp taxation is the only non-flow-through taxation elective for LLCs in Nevada. If you choose for your LLC to be taxed as a C-Corp, your business will pay its own income tax, and then the members of your LLC then pay income tax on the money they withdraw from the company. This is called double taxation.
Most LLCs choose to use the structure of a C-Corp for reasons other than tax. C-Corporations are usually very large businesses with significant annual profits, a large number of shareholders, or a need for funding. A lot of high-growth start-ups choose to operate under the C-Corp structure because foreign investors are not allowed to invest in S-Corp entities.
As well as paying Nevada LLC taxes, LLCs in Nevada can also deduct the cost of some costs from their total tax bill. Some of the costs that are tax deductible for LLCs in Nevada include:
Understanding which costs are tax deductible and how to calculate the total amount that you can deduct from your tax return can help you maximize your LLC’s net profits.
Across the US, self-employment income is subject to a social security tax of 12.4% and a Medicare tax of 2.9%. If you’re a member of an LLC that’s taxed as a partnership or as a sole proprietorship, you’re considered to be self-employed for tax purposes and may have to pay self-employment tax.
Some LLC members are able to avoid self-employment tax by claiming to be limited partners in the business as opposed to general partners. Whether this really exempts LLC members from paying self-employment tax is unclear, and for most LLCs, those members who are involved in higher-level decision-making and management should always be taxed as self-employed.
Nevada LLC tax filing requirements state that all state taxes are filed with the Nevada Department of Taxation. It’s possible to register to pay taxes through the Department of Taxation’s website.
If you operate a single-member LLC, you’ll pay your income tax when you file your individual tax assessment at the end of the tax year. If you operate a multi-member LLC that’s treated as a partnership, your LLC doesn’t have to file its own tax return; instead, the individual members of your LLC will pay the amount of tax they owe when they file their taxes.
If your LLC operates under a different tax structure, such as an S-Corp or a C-Corp, you have to file an informational return each year as well as additional tax forms. This means that filing your taxes as a corporation is somewhat more complex than when your LLC operates as a partnership or a sole proprietorship.