Filing Taxes for an LLC with No Income

Updated: 2/16/24

With tax season rapidly approaching, you may be wondering about the process of filing taxes for LLC with no income, and if it’s even necessary to do so. Ultimately, this depends on the organization’s business structure and how it’s taxed. To help you better understand, let’s briefly review the different types of LLCs and how they can be taxed.

This article will be dealing with federal taxation and is for federal income tax purposes, but your state will have its own rules for filing as an LLC for state taxes. Consult your state and local tax agencies and a qualified accountant to ensure that you’re meeting all your tax obligations. 

Do I need to file business taxes if there is no income?

There are multiple situations where a limited liability company (LLC) may have a year without activity. This could be a newly formed LLC that has yet to begin doing business or an older LLC that’s fallen into inactivity without being formally dissolved. Depending on how the LLC is structured and taxed, it may need to file a federal income tax return despite having no income.

What if I have no income but have business expenses?

If you’re a member (owner) of an LLC that has business expenses but no income, you’ll often still need to file a federal tax return. This is because expenses, including deductions, are considered a business activity subject to federal reporting requirements. 

How to File Taxes for an LLC with No Income

The process of filing taxes for LLCs with no income can vary greatly depending on how the specific LLC is structured and taxed.

Single-Member LLCs

If the LLC is a single-member LLC, the IRS will tax it as a sole proprietorship by default. In this situation, the owner will report any income and expenses on their own personal tax return. You will find this on Form 1040, Schedule C, “Profit or Loss From Business (Sole Proprietorship).”

Multi-Member LLCs

If the LLC is a multi-member LLC, the IRS will tax it as a partnership by default. Under a partnership, you’ll file Form 1065, Return of Partnership Income, which acts as an informational return to report the LLC’s profits, losses, credits, and deductions. The profits or losses pass through to the members, who receive a Schedule K-1 to report a breakdown of their respective profits or losses from the business. 

LLCs Taxed as Corporations

If you’ve elected to have your LLC taxed as an S corp or C corp, your filing process may look a bit different. If your LLC has C corporation status, it must file Form 1120 annually, even if it has had no business activity. C corporations aren’t pass-through entities and are counted as separate taxpayers. As a result, they must pay a 21% federal corporate tax before distributing earnings as dividends, which are then also taxed at the individual shareholder level.

If your LLC has S corporation status, it must file Form 1120-S annually, even if it has had no business activity. Unlike C corporations, S corps maintain pass-through status, meaning business income and expenses are reported only on the owners’ tax returns without first being taxed at the business level.

LLC Tax Filing Requirements

An LLC, known as a limited liability company, is an American form of a private limited company offering basic liability protection for its owners. These legal entities are taxed based on how they’re organized and structured and may be subject to other reporting and filing requirements.

Single-Member LLCs

When there is a single-member LLC, the IRS ignores its federal tax liability by default and treats it like a sole proprietorship. This means the LLC acts as a pass-through entity, and owners will report profits and losses from it on their individual tax returns.

Multi-Member LLCs

In multi-member LLCs, the IRS treats it as a partnership. Therefore, if the LLC is wholly inactive and has had no activity, you won’t need to file a federal business tax return. However, if there was any activity in the year, including business expenses, the LLC would be required to file an informational return on its profits, losses, and more.

Corporations

In some cases, an LLC may elect to have C corp status, where the IRS treats it like a corporation. These are separate legal and tax entities that are taxed at a corporate tax rate and are not afforded pass-through status. Profits from the business are taxed at both the corporate level and the individual shareholder level. In this scenario, corporations must file a federal return annually, even if the LLC has had no income.

Benefits of Filing Taxes as an LLC Even Without Business Activity

Filing taxes for your LLC, even in the absence of business activity, offers several key benefits. First, it helps ensure compliance with IRS requirements, avoiding potential penalties and complications in future tax years. It also establishes a clear record of your business’s financial status, which can be advantageous for audit purposes and when seeking loans or investments, as it demonstrates due diligence and financial transparency. Additionally, reporting expenses without income may allow you to carry forward losses to offset future income, reducing your tax liability in more profitable years.

This proactive approach can also simplify the process of reactivating your business, as it maintains a continuous tax filing history, reinforcing your credibility with both financial institutions and the IRS. Filing your taxes under these circumstances underscores responsible business ownership and can facilitate smoother financial management as your business evolves.

We can help!

If you’re looking for help filing taxes for an LLC with no income, we have tools to help. The ZenBusiness Money tool can track expenses and deductions throughout the year to keep you organized for tax time. We also offer many other services to help you launch, manage, and expand your operations.

So, if you want professional assistance and support regarding filing taxes for LLCs with no income, contact us today. Getting started is easy: simply visit our LLC Formation page for more info or call 1-844-493-6249 to begin.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.