How Your LLC Will Be Taxed
In this guide, we’ll cover the main business taxes required in Oregon, including payroll, self-employment, and federal taxes. Profits from 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 income tax on any profits, minus state allowances or deductions.
- Owners pay federal income tax on any profits, minus federal allowances or deductions.
- Employers pay payroll tax on any wages they pay to employees.
- Employees pay state and federal taxes on their earnings.
Items one, two, and three fall under pass-through taxation for any LLC owners, managers, or members who receive profits from the business. Gains are reported on federal and state personal tax returns.
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State Taxes for LLCs
There are three main types of state tax you must pay to the Oregon Department of Revenue: income, corporate excise, and corporate activity.
Oregon Income Tax
As a business owner, you’ll need to pay Oregon income tax on any money you pay yourself. These earnings flow through to your personal tax return. You’ll be taxed at Oregon's standard rates, and you’ll also be able to apply regular allowances and deductions.
Any employees will also need to pay state income tax.
The Oregon income tax rate varies between 5% and 9.9%, depending on how much you earn.
Oregon Sales Tax
Unlike many other states, Oregon doesn’t have a sales tax.
Oregon Corporate Excise Tax
Similar to the franchise tax in other states, the Oregon Corporate Excise Tax (CET) is levied for the privilege of doing business in the state. The tax is measured by net income, and companies filing for the excise tax are subject to a minimum tax.
This tax applies to LLCs that elect to be treated as corporations and is paid to the Oregon Department of Revenue.
Oregon Corporate Activity Tax
Similar to the CET, the Oregon Corporate Activity Tax (CAT) is also levied for the privilege of doing business in the state. However, this tax only applies to Oregon commercial activity in excess of $1 million. This tax is also paid to the Oregon Department of Revenue.
This tax applies to all business entities registered with the state, including LLCs.
Federal Taxes for LLCs
As the owner of an LLC, you must pay self-employment tax and federal income tax, both of which are levied as “pass-through taxation."
Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Oregon LLC is paying the correct amount.
Federal Self-Employment Tax
All members or managers who take profits out of the LLC must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA), and covers Social Security, Medicare, and other benefits. The current self-employment tax rate is 15.3%.
You’ll be able to deduct some of your business expenses from your income when calculating 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.
We can file the paperwork with the IRS on your behalf.
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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 for 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 are required to withhold federal taxes from their employee's wages. You’ll withhold 7.65% of their taxable wages, and your employees will also be responsible for 7.65%, adding up to 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 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
Depending on your industry, you may be liable for certain 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 certain 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 the amount of profit and income you expect to make. The most common types of estimated tax are:
- Federal income tax
- Federal self-employment tax
- Oregon income tax
Most LLCs will pay estimated taxes on a quarterly basis. Learn more on the IRS website, and speak to your accountant for more information.
FAQs on Oregon Business Taxes
Does Oregon Have a Sales Tax?
No. Oregon does not have a sales tax.
What Is the Oregon CET tax?
The Oregon Corporate Excise Tax (CET) is a tax levied on companies for the privilege of doing business in the state. You can read more about it above.
What Is the Oregon CAT tax?
The Oregon Corporate Activity Tax (CAT) is also a tax levied on companies for the privilege of doing business in the state, but only applies to businesses generating more than $1 million in revenue. You can read more about it above.
Does Oregon Have a State Income Tax?
Yes. Oregon does have a state income tax. You can find more information above.
Does Oregon Have a Franchise Tax?
No. Unlike many other states, Oregon does not have a franchise tax.
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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