How much tax does an LLC actually pay
Most LLC owners don't end up paying one tax. Instead, their total bill usually comes from three places: federal income tax, self-employment tax, and any taxes or annual fees imposed by their state.
A freelancer earning USD $50,000 may owe a very different amount than an agency owner earning USD $250,000, even if both operate through LLCs. Filing status, deductions, tax elections, and where the business operates all affect the final number. All of it feeds your effective LLC tax rate.
As a rough planning rule, many LLC owners reserve between 25% and 40% of profit for taxes throughout the year.
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*Actual liability depends on filing status, deductions, state taxes, and business structure. This is a cash-planning reserve, not a tax rate. A CPA can calculate a more accurate estimate once they know your filing status, state, deductions, and entity classification.
How are LLCs taxed by default
It starts with how many owners you have. That alone sets your default treatment, and you can change it later if the math says so.
Own the company by yourself and the IRS calls you a disregarded entity. In plain terms, it looks straight through the business to you, and your profit goes on Schedule C with your 1040. Add a second owner, and you're a partnership by default. The LLC files Form 1065 and hands every member a Schedule K-1 for their slice.
Neither setup pays tax at the company level. It all flows down to personal returns. And in a partnership, you get taxed on your share even if you leave the cash in the business, which catches a lot of people their first April.
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The bottom two are elections, not defaults. When they're worth filing comes up further down.
The 2026 federal income tax brackets
Your profit gets taxed at whatever personal bracket you land in, so the federal rates are the income-tax half of the story. Two things shifted for 2026, both your way. The One Big Beautiful Bill made the current rates stick, so the top stays 37% instead of snapping back to 39.6%. And the standard deduction climbed: USD $16,100 single, USD $32,200 married filing jointly, USD $24,150 head of household.
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A couple of traps live in that table. The rates are marginal, so reaching the 24% band taxes only the dollars sitting inside it, not everything you made. And your LLC profit doesn't start from zero on the ladder. It piles on top of any W-2 salary or a spouse's income on a joint return, so it gets taxed from your highest existing rate on up.
Self-employment tax: the one that surprises people
Then there's the tax nobody warns you about on day one. Self-employment tax is 15.3%, split 12.4% for Social Security and 2.9% for Medicare. A regular employee splits that bill with an employer. You don't have one, so you carry the whole thing.
For 2026:
- The 12.4% Social Security piece only runs on your first $184,500 of net earnings. After that, it drops off.
- There is no maximum earnings amount for Medicare tax. The 2.9% Medicare piece never stops.
- Clear $200,000 single, or $250,000 if you're filing jointly, and another 0.9% Medicare surtax applies past that point.
- You figure the tax on 92.35% of net profit, then deduct half of what you pay against your income tax.
Run a quick example. Your one-person LLC nets $90,000. Self-employment tax applies to 92.35% of that, which is $83,115, and 15.3% of that comes to about $12,717. Roughly $6,358 swings back as a deduction. All of that happens before the income-tax brackets even enter the picture, which is why this line drives so many of the decisions that follow.
This is also why many LLC owners are caught off guard during their first profitable year. Someone who expects to owe only income tax may discover that self-employment tax adds thousands of dollars to the bill.
The surprise is even bigger when estimated payments were never set aside during the year. By the time the return is filed, the money has often already been spent elsewhere in the business.A working rule: set aside about 30% of profit for federal income and self-employment tax until you've run your real numbers. Keep it out of your operating account, where money tends to look spendable.
The election that changes your number most
You can keep the LLC's legal shield and still tell the IRS to tax you another way. One election does real work for a profitable business.
Electing S-corp treatment (Form 2553) splits your income. You pay yourself a salary through payroll, and that part carries the 15.3%. The rest you take as distributions, which skip self-employment tax. Less salary exposed, less tax owed.
It tends to pay off once profit is steady and somewhere north of $60,000 to $80,000. Under that, running payroll and filing the extra return costs more than you save. To qualify, the IRS wants:
- A domestic entity
- No more than 100 shareholders
- One class of stock
- Owners who are eligible individuals, estates, or certain trusts
Here's the part people get wrong. The salary has to be reasonable for the work you do. Pay yourself $10,000 on $150,000 of profit to duck payroll tax, and you've basically invited an audit.
A C-corp election (Form 8832) goes a different direction. The company pays a flat 21%, and dividends get taxed again once they reach you. That's two layers, so it's a niche call, worth the friction mainly if you're plowing nearly everything back into the business or raising from investors who expect a C-corp.
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State taxes and annual fees
Federal is only part of it. Most states tax your LLC profit the same pass-through way, adding your share to your state return. Six states skip personal income tax altogether: Texas, Florida, Nevada, Washington, South Dakota, and Wyoming.
Then there's the flat fee plenty of states charge no matter how the year went:
- California wants $800 a year, minimum, and tacks on a gross-receipts fee ($900 up to $11,790) once revenue passes $250,000.
- Delaware keeps it simple at a flat $300.
- Texas runs a margin tax, but it only bites above roughly $2.47 million in revenue.
- Wyoming sits around $60, with no income or franchise tax.
One thing worth knowing before someone tells you to ‘just form in Delaware’: a cheap home state doesn't help if you operate elsewhere. Set up in Delaware, run the business out of California, and you'll register as a foreign LLC in California and owe its $800 anyway, on top of Delaware's $300. Unless an investor or lawyer is pointing you somewhere specific, form where you actually work.
The QBI deduction, now permanent
This is probably the biggest tax benefit an LLC gets, and it stopped being temporary. The Qualified Business Income deduction (Section 199A) takes up to 20% off your qualified business income. It was set to sunset after 2025. The One Big Beautiful Bill Act made it permanent in 2025, so it's something to plan around now rather than a perk on a countdown.
Where 2026 shakes out:
- Below roughly $201,750 single or $403,500 joint in taxable income, you get the full 20%.
- Above that, wage and property limits start chipping it down.
- Service businesses- think law, accounting, consulting, medicine, finance- phase out completely by about $276,750 single or $553,500 joint.
- New this year: at least $1,000 of QBI plus material participation earns you a $400 minimum, even if the formula would have zeroed out.
One caveat. QBI only works on the income-tax side. It does nothing for your self-employment tax.
What you'll actually pay, and when
Stack it all, and most LLC owners end up somewhere between 25% and 40% all in, depending on income and state.
None of this gets withheld for you, so you send it to the IRS yourself, four times a year, on Form 1040-ES. For 2026, the dates are April 15, June 15, and September 15, then January 15, 2027.
Miss them, and there's a penalty waiting, but the safe harbor is easy enough to clear: pay 100% of last year's total tax (110% if your AGI was over $150,000), and you're fine even if you owe more at filing. The owners who get stung in April are almost always the ones who spent the tax money over the year.
How to lower your LLC tax bill
You can't make the tax disappear, but you can shrink it:
- Claim every real deduction. Software, home office, mileage, travel, professional fees, and health insurance premiums all count.
- Put money into a SEP-IRA or Solo 401(k).
- Match your tax election to your profit.
- Keep business and personal money apart, with books a preparer can actually use.
Most LLC owners don't miss deductions because the tax rules are complicated but because records are incomplete. Keeping business spending separate, categorizing expenses consistently, and maintaining clean books throughout the year usually has a bigger impact than chasing obscure write-offs in March.
A dedicated business account, corporate card, and automated expense tracking can make that process easier. When quarterly tax deadlines arrive, owners already know where cash is going, what expenses have been recorded, and how much has been reserved for taxes.
For founders who want that separation and visibility built into their banking stack, Aspire¹ combines business accounts1, corporate cards2, expense management, and treasury3 tools in one place, reducing the amount of manual reconciliation that usually happens at tax time.
The goal is not just paying less tax. It's avoiding surprises when filing season arrives. It really comes down to records clean enough that your deductions survive a second look and your quarterly math holds up.
Bottom line
An LLC's tax rate was never one number. It's income tax at your bracket, self-employment tax on your profit, and your state's cut layered on top. What moves it most is how you're classified, whether you elect S-corp once profit is there, and the QBI deduction. Set money aside every quarter, and the filing turns into a non-event, which is the goal. And since the right mix really does hinge on your profit, your state, and where you're heading, run it past a CPA before you lock in any election.
FAQs
Can an LLC get a tax refund from the IRS?
A default LLC doesn't get an entity-level refund, since it pays no entity-level income tax in the first place. Any refund comes back to you personally if your estimated payments ran ahead of what you owed. An LLC that elected C-corp treatment can get a corporate refund, because it files and pays on its own.
Do I owe tax on profit I leave in the business?
Yes. As a pass-through owner, you're taxed on your share whether you withdraw it or not. Parking $40,000 in the company account doesn't kick the tax to next year.
What happens to my LLC taxes if I add a partner or investor?
A second owner flips a single-member LLC from a sole proprietorship to a partnership by default. You move from Schedule C to Form 1065, start issuing K-1s, and should update your operating agreement to spell out how profit splits.
Do I owe tax in every state where I operate?
Sometimes. Once you create a nexus in a state, through employees, an office, inventory, or sales over its threshold, you can owe income or franchise tax there. Operating across several states is one of the faster ways an LLC tax situation gets complicated.
Is an LLC taxed twice like a corporation?
Not by default. Pass-through taxation is the whole appeal: profit is taxed once, on your return. The double hit only shows up if you elect C-corp treatment, where the company pays tax and then dividends get taxed again.
