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How Your LLC Will Be Taxed
In this guide, you'll learn about the main Virginia business taxes you'll be responsible for, including sales, self-employment, payroll and federal taxes. Profits from an LLC aren’t taxed at the business level the way they are in C Corporations. Instead, they're as follows:
- Owners pay self-employment tax on business profits.
- Owners pay federal income tax on any profits, less allowances and deductions.
- Some LLCs pay Texas sales tax on products or services.
- Employers pay payroll tax on wages paid to employees.
- Employees pay federal income tax on their earnings.
Items 1, 2 and 3 fall under pass-through taxation for LLC owners, managers and members who receive profits from the business. Profits are reported on personal state and federal tax returns.
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State Taxes for LLCs
There are three state taxes you must pay to the Virginia Department of Revenue: income, sales, and franchise.
Virginia Income Tax
As a business owner, you’ll need to pay Virginia income tax on any money you pay to yourself. These earnings flow through to your personal tax return. You’ll be taxed at Virginia's standard rates, and you’ll be able to apply regular allowances and deductions.
Any salaried employees you hire will also need to pay Virginia income taxes. Virginia income tax rates range between 2% and 5.75%, depending on how much you earn.
Virginia Sales Tax
If you sell physical products (such as electronics, books, cars, furniture, appliances, raw materials, etc.) or certain services, you may need to collect Virginia sales tax at the point of purchase. You'll remit the taxes you collect to the VA Department of Revenue.
Most states don’t levy sales tax on food, medications, clothing, gas and other necessities.
The Virginia sales tax rate is 5.3% statewide. Local taxing jurisdictions, such as cities and counties, may impose additional sales tax at varying rates.
Virginia Franchise Tax
Some states levy a tax on certain businesses for the right to exist as a legal entity and do business in the state, called franchise tax, transaction tax or privilege tax. There is no Virginia franchise tax.
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 Virginia 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:
- On profits of $40,000, you would pay $6,120.
- On profits of $70,000, you would pay $10,710.
- On profits of $100,000, you would pay $15,300.
- On profits of $160,000, you would pay $24,480.
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.
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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 employees’ 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.
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
- Virginia 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 Virginia Business Taxes
Does Virginia Have a Sales Tax?
Yes. Virginia does have a sales tax, which varies among cities and counties. You can find more information above.
Does Virginia Have a State Income Tax?
Yes. Virginia does have a state income tax. You can find more information above.
Does Virginia Have a Franchise Tax?
No. Virginia 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'll find more information above.