If you want to form a limited liability company (LLC) in Massachusetts, you have to prepare and submit different documents with the state. Among those are ongoing reporting and tax filing obligations.
LLC Taxation
Generally, all LLCs are not taxed at the business level like corporations. In most cases, this type of company enjoys pass-through taxation.
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- The owners, who are known as members, pay self-employment taxes on profits from the business.
- The members pay state taxes on any profit minus state allowances and deductions.
- The members pay federal income taxes on any profit minus federal allowances and deductions.
- Depending on their activities, some LLCs in Massachusetts have to pay sales taxes on products.
- LLCs that have employees pay payroll taxes on the salaries of the employees.
- The employees of LLCs have to pay federal, state, and payroll taxes on their earnings.
The first three items are taxed as pass-through income for LLC members or managers receiving profits from the company. The profits will also be reported on federal and state personal tax returns. That is where the members will pay taxes.
Federal Income Tax
Massachusetts LLCs do not have to pay taxes to the federal government. By default, the Internal Revenue Service (IRS) treats single-member LLCs as sole proprietorships and multi-member LLCs as partnerships.
Despite that, the members will still have tax obligations. The current rate for self-employment tax is 15.3%. Owners of single-member LLCs have to report all of their profits and losses on their personal tax return. You can do this by submitting a completed tax form 1040 to the IRS. You can usually report this information in Schedule C. Depending on where you get your income, you may need additional Schedules. On the other hand, members of multi-member LLCs have to file form 1065.
Your company can opt to be taxed as a C corporation. In that case, you will have to file business taxes to the federal government by submitting form 1120. If you choose to elect S corporation taxation, then you have to submit IRS form 2553 first. Then, use form 1120-S for your tax filings.
State Taxes
Massachusetts has two main types of taxes for LLCs under the Department of Revenue (DOR). These are the state income and sales taxes. You will have to acquire a Massachusetts tax identification number in order to pay them.
Income Taxes – As a business owner, you will have to pay state tax on the money that you will pay yourself. The earnings will pass through to your individual tax return, which is where you will have to pay income taxes. The current rate for state tax in Massachusetts is 5%. You can apply regular allowances or deductions.
Sales Tax – If your company will sell any physical product or offer certain services, then you may have to collect sales taxes and pay them to the DOR. The sales tax will be collected at the point of purchase. The rates will vary between cities and counties. You will have to register with the DOR for this purpose to get a Sales and Use Tax Registration Certificate for your business location. To file your annual state sales tax return, you can submit online or download tax form S-10 from the website of the DOR.
Other Possible Taxes
Depending on the activities of your company in Massachusetts, you may have to pay additional taxes.
Business Tax – In most cases, LLCs are pass-through entities when it comes to taxation. However, there are business owners who opt for a corporation type of taxation. If that is the case for you, then your company will have to file a separate tax return. You will also have to pay a corporate income tax in Massachusetts. The total will be based on the taxable tangible property plus 8% of the income that is attributed to Massachusetts sources. The minimum tax is $456. LLCs taxed as corporations will have to pay this and submit tax form 355 to the DOR.
Employer Tax – If your Massachusetts company has employees, you will have to pay employer taxes. First, you will have to withhold and pay employee income taxes. You have to register with the DOR for this purpose. The filing of income tax withholding is periodical, which is usually monthly or quarterly. Use form M-941. The typical withholding rate is 7.65% of the taxable salary.
Second, you may also have to register with the Department of Unemployment Assistance (DUA). Then, you will have to pay quarterly unemployment insurance contributions. To find out more about this, visit the official website of the Office of Labor and Workforce Development.
Industry-Related Taxes – Your company may also have tax liabilities that are specific to the industry. Here are some possible tax obligations:
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- Transient Room
- Motor Vehicle
- Consumer’s Use
- Telecommunications
- Utility Gross Receipts License
- Tobacco
- Property
- Alcohol
- Fuel
Calculating the tax obligations of your Massachusetts company requires you to consider federal, state, and local taxes. You have to consider the specific circumstances of your business entity as well. Make sure that you check with the appropriate agencies to prevent making mistakes. Failure to pay the right amount can have negative implications.
Other Annual Filing Requirement
Aside from tax obligations, Massachusetts LLCs also have annual filing requirements. You have to file an annual report on or before the anniversary date when you filed your company’s original Certificate of Organization. This filing costs $500.
You can submit the report by mail or online to the Corporations Division. To access the form, you will need your customer ID number and PIN. To complete the form, you will have to provide the name of your company, its principal office address, and the name and address of the registered agent.
Getting Help With A Massachusetts Tax Form
Doing business in Massachusetts requires you to comply with various tax obligations and tax requirements. Failure to do so may put you at risk of losing your good standing status. If you need help in figuring out how to handle state compliance requirements, consult our team at DoMyLLC.
Business Filing Section