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How Your LLC Will Be Taxed
In this guide, we’ll cover the main business taxes required in Ohio, including state sales tax, and self-employment, payroll and federal taxes. The profits of an LLC aren't taxed at the business level like C Corporations. Instead, taxes are as follows:
- Owners pay self-employment tax on business profits.
- Owners pay state tax on any profits, less state allowances or deductions.
- Owners pay federal income tax on any profits, less federal allowances or deductions.
- Some LLCs pay Ohio sales tax on products.
- Employers pay payroll tax on any salaries they pay to employees.
- Employees pay federal and state tax on their earnings.
Items 1, 2 and, 3 fall under pass-through taxation for any LLC owners, managers, or members who receive profits from the business.
Any profits are reported on federal and state personal tax returns.
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State Taxes for LLCs
There are two main types of tax you must pay to the Ohio Department of Revenue: income and sales.
Ohio Income Tax
As a business owner, you'll need to pay Ohio income tax on any money you pay to yourself. These earnings flow through to your personal tax return. You'll be taxed at the standard rates for Ohio, and you'll get to apply regular allowances and deductions.
Any salaried employees will also need to pay Ohio income tax.
Ohio income tax rates vary between 2.85% and 4.797%.
Ohio Sales Tax
If you sell physical products or certain types of services, you may need to collect sales tax and then pay it to the state's Department of Revenue. Ohio sales tax is collected at the point of purchase. Ohio sales tax rates vary depending on the region, county, or city where you're located.
You'll typically need to collect Ohio sales tax on:
Most states don't levy sales tax on goods that are considered necessities, such as food, medications, clothing, or gas. Use our sales tax calculator to get an idea of what you'll need to pay, but always check with your accountant and the Department of Revenue to confirm whether your business is required to collect Ohio sales tax and ensure you're paying the correct amount.
Ohio Franchise Tax
Some states require certain businesses to pay a special tax for the right to exist as a legal entity and do business in the state. This is usually called a franchise tax, though some states call it a transaction privilege tax or simply a privilege tax. As of 2008, Ohio no longer has a franchise tax.
Federal Taxes for LLCs
As an LLC owner, you're required to pay self-employment tax and federal income tax, both of which are levied as “pass-through taxation." Federal taxes are complicated, so speak to your accountant or tax professional to make sure your Ohio LLC pays the correct amount to avoid fines and penalties.
Federal Self-Employment Tax
All members or managers who take profits out of the LLC will need to pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA), which covers Social Security and Medicare, and other benefits. It applies to all the earnings you withdraw from your business. The current self-employment tax rate is 15.3%.
You'll be able to deduct your business expenses from your income when working out how much self-employment tax you owe.
Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:
Pay Less Self-Employment Tax by Treating Your LLC as an S Corporation
The Internal Revenue Service allows an LLC to be treated as an S Corporation for tax purposes, provided your business meets certain requirements. This can help you reduce the amount of self employment tax you pay by allowing you to declare some of your income as salary and other income as distributions or withdrawals.
You do this by filing Form 2553, also known as an S Corp Election form, with the IRS. Bizee can also file the form for you. Use our S Corp Tax Calculator to get an idea of how much money you could save with this election.
Consult with your accountant or tax advisor for more information on reducing your LLC self-employment tax through an S Corporation tax election.
Treating Your LLC as an S Corp Can Help You Save Money.
Get My LLC Treated As an S Corp
Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your LLC. The amount of income tax you pay depends on your earnings, current income tax bracket, deductions, and filing status.
You only pay federal income tax on profits you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus business expenses and other deductions in areas such as healthcare and some retirement plans.
Speak to your accountant for more information.
Employee and Employer Taxes
If you pay employees, there are some slightly different tax implications.
Speak to your accountant to get clear guidance for your unique situation.
Employer Payroll Tax Withholding
All employers must withhold federal taxes from their employees' wages. You’ll withhold 7.65% of their taxable wages, and your employees will also be responsible for 7.65%, totaling the current federal tax rate of 15.3%.
Speak to your accountant for more information.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and Ohio state income tax, your employees may need to file their own tax returns.
Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, such as employee compensation insurance or unemployment tax.
Other Taxes and Duties For Your LLC
Depending on the industry you are in, you may be liable for other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay duties.
Speak to your accountant about any other taxes or duties you may need to withhold or pay.
Estimated Taxes
Most LLCs must pay estimated taxes throughout the year, depending on your adjusted gross income, taxable income, taxes, deductions, and credits for the year. The most common types of estimated tax are:
- Federal income tax
- Federal self-employment tax
- Ohio income tax
Most LLCs will pay estimated taxes quarterly. Learn more on the IRS website, and speak to your accountant for more information.
FAQs on Ohio Business Taxes
Does Ohio Have a Sales Tax?
Yes. Ohio does have a sales tax, which may vary among cities and counties. You can find more information above.
Does Ohio Have a Franchise Tax?
No. Ohio does not have a franchise tax. You can find more information above.
Does Ohio Have a Income Tax?
Yes. Ohio does have a state income tax. You can find more information above.
Do I Need to Pay Estimated Taxes?
Yes. In most cases, you must pay estimated taxes to the state and federal governments. You can find more information above.
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