Small business

First Year LLC Taxes: What to Expect and What to File

Updated October 1, 2026

By default, a one-owner LLC is taxed as part of your personal return, and an LLC with two or more owners is taxed as a partnership. Either way, a new LLC that makes a profit usually needs to plan for estimated taxes.

Forming an LLC does not change your taxes by itself

An LLC is a legal structure. The IRS does not tax it as a separate kind of entity by default. What matters is how many owners it has and whether it made a tax election. That is why two LLCs can file very different returns.

This post covers federal tax basics. State fees and filings vary by state, and legal questions belong with an attorney.

An election is a choice made by filing a form with the IRS. If you have made no election, the default rules apply. That default is the starting point for nearly every small LLC.

Single-member LLC

The IRS says an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation. In practice, you report the business on your own Form 1040.

An owner who is an individual usually uses Schedule C for a business, or Schedule E for rental activity. Net profit is also subject to self-employment tax. See our Schedule C explainer and rental property guide for details.

Even though the LLC is ignored for income tax, it is still a separate legal entity for other purposes, such as contracts and liability. Keep it separate in practice too. Use a business account, and pay yourself by moving money to your own account rather than paying personal bills from the business account.

One more note for owners with rental property inside an LLC. Rental income is generally reported on Schedule E rather than Schedule C, and we add rental returns at a separate starting price shown on our pricing page.

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Multi-member LLC

The IRS says a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it elects to be treated as a corporation. A partnership files Form 1065, an information return, and gives each member a Schedule K-1 showing that member's share. Members then report their share on their own returns.

If you are not sure which group your LLC falls into, bring your formation papers and we will look at what applies to the return we prepare.

Whether the partnership files a return on time also matters to each member, because each member's K-1 is needed to finish a personal return. Members should agree early on who gathers the records and who sends them to the preparer.

EIN basics

An EIN is a federal tax number for a business. The IRS says you need one if you have employees or will pay employment or excise taxes, and it lists partnerships, corporations and LLCs among the entities that need one. Its single-member LLC guidance adds that a disregarded single-member LLC with no employees and no excise tax liability does not need an EIN and can use the owner's name and taxpayer number. It does need one if it has employees or excise tax liability, or if state tax law requires one.

The IRS says you can get an EIN for free directly from the IRS.
Apply on the IRS website, not through a site that charges a fee.
Keep the confirmation letter with your business records.

You do not need an outside service to get an EIN. Be careful with sites that look official but charge a fee for something that is free.

Some banks and states also ask for an EIN even when the IRS does not require it for a single-member LLC. That is one reason many owners get one anyway. It also keeps your Social Security number off forms you hand to customers.

When a new business needs estimated taxes

If your LLC makes money in year one, you may owe tax with no employer withholding. The IRS says individuals generally have to make estimated tax payments if they expect to owe $1,000 or more when their return is filed. Since self-employment tax also applies, even a first-year profit can add up fast. Read our quarterly estimated tax guide. If you started mid-year, base your estimate on what you expect to earn from your start date.

If your business has a slow first year, estimated payments may be small or unnecessary. Revisit the numbers each quarter instead of guessing once. Estimates are meant to follow your real profit.

First-year checklist and what to gather

Open a business bank account and use it only for the business.
Record your start date and startup costs.
Save your formation papers and EIN letter.
Track income and expenses from day one.
Put aside a share of each payment for taxes.

Bring those records to your preparer, plus your state formation papers and any 1099 forms you received. Our pricing page shows what a self-employed return starts at.

Keep a simple folder for the year. Put the formation papers, your EIN letter, your bank statements and your major receipts in it. When it is time for your return, hand the whole thing over.

Common first-year surprises

New owners are often caught off guard by the same few things.

Self-employment tax on top of income tax, even in a small profit year.
Startup costs that do not all count as an immediate deduction, especially for a business that started late in the year.
Personal and business money mixed together, which makes the return harder.
State and local fees that come due even when you made no profit.

None of these is a disaster if you catch it early. The sooner your records are organized, the easier all of it is.

FAQ

Does my LLC file its own federal return?

A single-member LLC by default does not. It is reported on the owner's return. A multi-member LLC by default files Form 1065 as a partnership.

Do I need an EIN for a single-member LLC?

Not always. The IRS says a single-member LLC with no employees and no excise tax liability does not need one and can use the owner's name and taxpayer number. It does need one if it has employees or excise tax liability, or if state tax law requires it. Banks and states may still ask for an EIN, and the IRS says you can request one for banking or state tax purposes.

Can an LLC be taxed as a corporation?

Yes. The IRS says an LLC can file Form 8832 to elect to be treated as a corporation. That is a bigger decision, so talk to a qualified professional first.

Do I owe tax if my LLC lost money?

You may not owe income tax on a loss, but you still report the activity. Loss rules have limits, so keep clean records.

Sources

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General information, not tax advice for your specific situation. Rules can change, and a human preparer reviews your facts before any return is filed. Zero Fuss Taxes is a PTIN-holding tax preparation firm. We are not a CPA firm, enrolled agents or attorneys.

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