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Utah LLC Taxes

How to Start an LLC

edit this intro to include the listed anchor text or some variation of each phrase. Only make the bare minimum changes to fit in the anchors. Bold the anchors in the reply: As Benjamin Franklin said, “nothing is certain except death and taxes.” This quote definitely still applies when you form an LLC in Utah. An LLC can offer many benefits including anonymity and asset protection. However, it comes with requirements including drafting an operating agreement, filing an annual report, and making sure you pay your taxes.

Luckily, Utah is a business friendly state with low fees. One of the advantages of an LLC is the flexibility offered by the option of different tax elections, such as an S-corp. In fact, when you have a single member LLC you will most likely either pay the same amount in taxes or save on taxes when compared to a sole proprietorship.

What Is an LLC?

A limited liability company (LLC) is a business entity that can have one to an unlimited number of owners known as “members”. Limited liability means that these owners’ personal assets are protected from debt and lawsuits their LLC may face. Owners also have a separation of identity from their business entity which gives them more anonymity. If the benefits of making your business into an LLC interests you, we have guides on forming an LLC.

How Are Limited Liability Companies Taxed?

LLCs have very unique tax characteristics in that they are not taxed as a single entity like a corporation would. The IRS classifies LLCs as a “pass-through entity,” meaning that the profits and losses “pass-through” the business and becomes the responsibility of the LLCs’ owners to report on their own personal tax returns. LLCs themselves do not have to pay federal income taxes, however, make sure to check your state regulations as some mandate an annual tax on LLCs.

Taxation for Single Owned and Multi-Owned LLCs

Single Owner LLCs

One-member LLCs are treated like sole proprietorships for taxation as declared by the IRS. To clarify, this means that the LLC will not file a tax return for or pay taxes for itself, instead it will be the owner’s responsibility. The owner of the one-member LLC will need to prepare a Schedule C that lists the income, expenses, and calculated net income of the LLC to attach to their personal tax return (Form 1040 or 1040-SR).

Multi-Owner LLCs

The IRS treats co-owned LLCs as partnerships for tax purposes. Like one-member LLCs, co-owned LLCs also do not pay any taxes on business income; Instead, all the LLC owners pay taxes on their share of the profits. There are more steps involved in reporting your income as an owner of this type of LLC:

  1. The partnership uses Form 1065 to file an information return with the IRS
  2. A Schedule K-1 is prepared for each member of the partnership, these schedules detail that member’s share of the profit or loss of the co-owned LLC.
  3. Members would need to copy the information from the Schedule K-1 into Schedule E - Supplemental Income. There are specific places on Schedule E to mark the types of income that the Schedule K-1 breaks down for you.
  4. Finally they would attach the Schedule E information to their personal income tax returns (Form 1040 or 1040-SR).

Electing Taxation

An LLC can choose how they would like to be taxed. They can be taxed in three different ways:

  1. As an S Corporation
  2. As a partnership
  3. As a sole-proprietor

When the member of an LLC has a high income, they should consider being taxed as a corporation to possibly lower the tax amount they have to pay. However, keep in mind that corporations are subject to double tax. The corporation pays the corporate tax, and then shareholders will have to pay another tax on their dividends. So make sure that the tax savings outweigh the inconvenience of double taxation by a substantial amount.

Partnerships don’t pay federal income tax. Partnerships are taxed as a pass-through entity where the taxes come out of the member’s personal returns. This is recommended for multi-owner LLCs

With sole-proprietor LLCs, members will pay self-employment taxes and are not subject to double taxation. This is the recommended default for single-owner LLCs

Make sure to carefully consider these options with a tax professional or a CPA.

Start Your Business

What Is Tax Deductible for an LLC?

There are a lot of expenses that an LLC has to cover, but LLCs can claim numerous tax deductions to reduce those costs. We recommend working with our trusted partner, Bench. They can help you organize your books, maximize your deductions, and efficiently complete your filing this year.

A list of deductible items are as follows:

  • Start-up costs
  • Travel Expenses
  • Equipment costs
  • Advertising
  • Promotion
  • Income tax deduction*

*Since the Tax Cuts and Jobs Act in 2018, owners of pass-through entities can deduct 20% of the net income of the entity for tax purposes. That being said, if the taxable income surpasses an annual threshold, the deduction is instead limited to 50% of the payment made to employees of the entity.

Other LLC Taxes

LLCs will need to collect and pax sales tax if their employees plan to sell any goods. LLCs in Utah can register online at the Online Business Registration Website or by using a Form TC-69, Utah State Business and Tax Registration that they can submit to the Utah State Tax Commission (TC).

If your LLC has employees, you are required to pay employer taxes. You will need to withhold and pay employee income taxes to the Utah TC.

Additionally, your business will most likely need to pay state unemployment insurance (UI) taxes. For Utah, this is handled through the Department of Workforce Services (DWS). Start by submitting a DWS-UI Form 1 to the DWS, and then every quarter you will use DWS-UIC Form 33H to report wages and pay taxes. More information is available on the Utah Government website for Workforce Services. .

Members of an LLC are required to pay self-employment taxes because they are not employees of the LLC. These taxes are submitted to the IRS on Schedule SE during that member’s annual tax return.

How LLCs Pay State Income Tax

Typically LLC owners pay state taxes on their personal returns, and the LLC does not have to pay the state tax itself.

State Income Tax is calculated differently depending on the classification of the LLC on a state-per-state basis. Once you have determined your LLC’s tax status, check your state’s Department of Revenue for the regulations on how your state might be taxed. Some states may use alternative wording like franchise tax, annual registration fee, or renewal fee. Furthermore, some states nix the income tax in favor of charging LLCs a gross receipts tax.

In Utah, the state requires you to fill out a renewal report for your LLC every year. As a helpful reminder, a renewal notice will be sent from the DOC roughly 60 days before the report is due. There is a $20 fee for submitting this annual report.