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LLCs can be taxed as disregarded entities (part of the owner’s tax return), partnerships, or corporations. Regardless of their tax classification, however, these businesses must pay income tax annually.
One of the questions you may have as an LLC owner is whether LLCs need to pay estimated taxes. Read on to know the answer and what to do if you’re required to make these payments.
Key Takeaways
- LLCs taxed as sole proprietorships or partnerships must pay estimated taxes if they expect to owe $1,000 or more in taxes.
- Conversely, LLCs taxed as corporations must pay estimated taxes if they expect to owe $500 or more in taxes.
- Estimated taxes are determined based on your LLC’s adjusted gross income, taxable income, taxes, deductions, and credits for the current year.
- If your LLC is taxed as a sole proprietorship or partnership, use IRS Form 1040-ES for calculating estimated taxes. An LLC taxed as a corporation can elect an annualization option for estimated tax computations through Form 8842.
- Estimated tax payments are due on April 15, June 15, September 15, and January 15 (set for the next tax year). The IRS imposes penalties for underpayment.
Who’s Required to Pay Estimated Taxes?
According to the IRS, individual taxpayers are required to pay estimated taxes if they expect to owe $1,000 or more in taxes. These taxpayers include sole proprietors and partnerships. If you form an LLC that will be taxed as any of these businesses and meet the abovementioned threshold, you may need to pay estimated taxes.
Additionally, corporations may need to pay estimated taxes if they expect to owe $500 or more in taxes. This threshold can apply to LLCs treated as C corporations for income tax purposes.
As for LLCs with S corporation status, their members must pay estimated taxes if they meet the threshold for individual taxpayers.
Bonus Tip
Watch the video below to know whether an LLC needs to make estimated tax payments.
How to Calculate Estimated Taxes
Estimated taxes for LLCs that meet any of the thresholds discussed above are determined by calculating the following:
- Adjusted gross income
- Taxable income
- Taxes
- Deductions
- Credits
Do note that these amounts should be estimated for your LLC’s current tax year. The IRS recommends using the income, deductions, and credits you’ve estimated for the previous year to calculate your estimated tax for the current year. Your federal tax return for the previous year will also help you determine this tax.
Which IRS Form Should I Use For Estimated Taxes?
If your LLC is taxed as a sole proprietorship or partnership, you use IRS Form 1040-ES (Estimated Tax for Individuals). The document’s set of instructions comes with a worksheet that should be kept for your records.
Here’s the information you must provide on the worksheet for Form 1040-ES.
Section | Information Needed |
Line 1: Expected AGI |
|
Line 2: Expected Taxable Income |
|
Lines 4-11c: Expected Taxes and Credits |
|
Line 12c: Required Annual Payment | The estimated total amount you must pay for the current tax year – This is determined through withholding and estimated tax payments. |
Line 12b: Total tax for 2024 | If you’ve filed tax returns for 2024, you must provide your total tax for that year. The amount is subtracted by the following:
|
Line 14a: Total Estimated Tax Payments Needed | The total amount of your expected estimated tax payments for the current tax year |
IRS Publication 505 (2025) provides more information on these calculations.
Which IRS Form is Used for Corporations with Estimated Taxes?
If your LLC is taxed as a corporation and it expects to owe $1,000 or more in taxes after filing its annual tax return, it should use IRS Form 8842. The company chooses one of the two annualization options under Section 6655(e)(2)(C) for estimated tax calculations.
Whichever form you use for estimated taxes, keep accurate records throughout your LLC’s tax year. It’ll simplify your calculations and help the business stay compliant when filing its taxes.
When to Pay Estimated Taxes for LLCs
The IRS sets four payment periods for estimated taxes, all scheduled within the current tax year. You must pay the full amount of your estimated tax by the due date specified for each period. Otherwise, you may incur a penalty. This applies even if you’re entitled to a refund upon filing your income tax return.
The Due Dates for an LLC’s Estimated Taxes
Estimated tax payments must be made to the IRS by:
- April 15 for income earned January 1 to March 31
- June 15 for income earned April 1 to May 31
- September 15 for income earned June 1 to August 31
- January 15 of the following year for income earned September 1 to December 31
When these dates fall on weekends or federal holidays, your payments will be due on the next business day.
Related Resource: Get more information about quarterly tax payments from the NCH blog.
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Where to Pay LLC Estimated Taxes
Estimated taxes can be paid by mail, online, by phone, or via the IRS2Go app. If you’re an individual taxpayer with an IRS account, you can pay estimated taxes online.
For LLCs with estimated tax payments, they can use their business tax account or the IRS Direct Pay service. Conversely, the Electronic Federal Tax Payment System (EFTPS) is used for some business tax payments.
The IRS allows you to pay estimated taxes weekly, bi-weekly, monthly, or on your chosen schedule. Just make sure to remit the full amount to the agency by the end of the quarter. You can find all possible payment options on the IRS website.
What Happens If I Can’t Pay Estimated Taxes in Full?
If you can’t pay the full amount of your estimated taxes, you’ll be charged a penalty for underpayment. You can avoid this penalty if you:
- Owe less than $1,000 in tax after subtracting their withholdings and credits.
- Pay at least 90% of your taxes for the current year.
- Pay 100% of the tax reported on your return for the previous year.
How Are Underpayment Penalties Calculated?
Underpayment penalties apply to individual taxpayers and corporations. They’re determined by the tax reported on your original return or a more recent return filed on or before the due date of estimated tax payments. This amount is your total tax with your total refundable credits subtracted from it.
Potential penalties are determined by three factors. If you paid less than the required amount for estimated taxes and it was due on any of the payment periods, you’ll be subject to a penalty. Also, the IRS uses current quarterly interest rates for underpayments to calculate penalties.
Can Underpayment Penalties Be Waived?
Underpayment penalties can’t be waived due to reasonable cause. However, you may get penalty relief if a casualty, local disaster, or another unusual circumstance caused your underpayment.
To seek relief from underpayment penalties, consider sending a written explanation to the address shown on your IRS penalty notice.
Frequently Asked Questions
Do single-member LLCs have to pay estimated taxes?
Yes, single-member LLCs have to pay estimated taxes if they expect to owe $1,000 or more in taxes for the current year.
Since these businesses are taxed as sole proprietorships, they use estimated tax to pay Social Security, Medicare, and income taxes. All three aren’t withheld, unlike LLCs that do this for employees.
What happens if I fail to pay estimated taxes in full?
If you fail to pay estimated taxes in full, you’ll be charged an underpayment penalty. Interest applies to this penalty, and it’ll be charged from the date set by the IRS for underpayment of estimated taxes.
Moreover, interest adds to your owed taxes. It’s fully reduced once you settle your balance.
Can I adjust my estimated tax payments during the year?
Yes, you can adjust your estimated tax payments during the year. The IRS recommends doing this to reflect the changes to your specific circumstance and those applicable to tax laws.
How can my LLC calculate estimated tax payments?
To calculate estimated tax payments, your LLC can base them on its income, deductions, and credits for its previous tax year. The company’s federal tax return for the previous year should show these amounts.
Additionally, your business can calculate its estimated tax on the worksheet provided with IRS Form 1040-ES.
Who doesn’t need to pay estimated taxes?
Taxpayers who meet the following conditions don’t need to pay estimated taxes.
- They had no tax liability for the previous year (LLCs must declare a total tax of zero or that they weren’t required to file an income tax return.)
- They were U.S. citizens or residents for the whole year.
- Their previous tax year covered a 12-month period.
Can an LLC withhold taxes to avoid paying estimated tax?
Yes, an LLC can withhold taxes to avoid paying estimated tax.
If you pay yourself a reasonable salary for your work, you can withhold more tax from it. This additional amount should be reported on a new copy of IRS Form W-4. Use the IRS Tax Withholding Estimator to calculate withholding taxes for your earnings.
What forms do multi-member LLCs use for estimated tax payments?
Since multi-member LLCs are taxed as partnerships, they must issue a copy of IRS Form 1040-ES to each of their members. This form is used to calculate an LLC member’s estimated tax payments based on their allocated share of business income and losses.
Can I use the safe harbor rule if my LLC’s income increased significantly?
Yes, you can use the safe harbor rule if your LLC’s income increased significantly.
Under this rule, high-income taxpayers with an AGI of over $150,000 shown on their tax return for the previous year must pay:
- 90% of the tax reported on their return for the current year, or
- 110% of the tax reported on their return for the previous year
Do LLCs taxed as S corporations need to pay estimated taxes?
LLCs taxed as S corporations may need to pay estimated taxes.
Generally, S corporation shareholders who owe $1,000 or more in taxes must make estimated tax payments. But if LLCs with the S corporation tax status want to determine their potential estimated taxes, they must file IRS Form 8842.
Does my LLC need to pay estimated taxes at the state level?
Your LLC may need to pay estimated taxes at the state level. This depends on where the business was formed.
To learn about state requirements for estimated taxes, visit your tax department’s website. You can also contact your local tax authorities for guidance.
Expert Tips From NCH
- Consider transferring estimated tax payments to a dedicated savings account every quarter. It can make funds available for estimated taxes and other tax obligations without disrupting your cash flow.
- Pay estimated taxes a few days before each quarterly deadline to avoid potential delays. EFTPS allows payments to be scheduled up to 365 days (1 year) in advance.
- Develop and implement an effective estimated tax payment strategy instead of setting fixed amounts. This helps you adjust estimated taxes to your current circumstance and changing tax laws.
- Document your estimated tax calculations every quarter. Having up-to-date records of these calculations is important if the IRS audits your business.
Manage Your LLC’s Tax Obligations Successfully
LLCs may be subject to estimated taxes, depending on how they’re taxed. The thresholds for these taxes can apply to LLCs classified as sole proprietorships, partnerships, or corporations. However, calculating LLC estimated taxes can be challenging and time-consuming.
NCH’s professional tax advisors are here to help you determine whether your business needs to pay estimated taxes and prepare accurate calculations for them.
Talk to Our Tax Consulting Experts Today
DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.