Being a business owner requires you to ensure that your company remains compliant with state obligations and requirements at all times. That is why you have to file the necessary reports and pay certain fees. Among the most important obligations are the taxes you should file and pay.
Many entrepreneurs in Indiana choose to form a limited liability company (LLC) because of the protection it offers to the owners, also known as members. Even if your company ends up incurring debts and liabilities, those will not affect your personal assets. Additionally, you can enjoy pass-through taxation. That means the company will not be taxed at a corporate level. Instead, the members report profits and losses on their individual tax returns.
Federal Income Tax
Usually, an Indiana LLC does not pay any federal taxes. That is because the default taxation status for LLCs with a single member is as a sole proprietorship. On the other hand, LLCs with more than one member are treated as a partnership. So members usually report profits and losses on their individual tax returns.
Single-member LLCs can do this by completing the Internal Revenue Service (IRS) tax form 1040 and reporting the said information on Schedule C. You may have to attach additional schedules based on the source of your income. For multiple-member LLCs, the form you will have to use is 1065.
State Business Tax
Indiana is among the states that do not impose a separate tax for LLCs doing business in the state. However, LLCs that choose to be treated as a corporation for tax purposes have to file corporate income taxes. The state will tax the adjusted gross income of your company at a flat rate. Indiana has set the rate to decrease every 12 months until 2021. From July 1, 2020 to June 30, 2021, the rate is 5.25%. After June 30, 2021, it will become 4.9%.
The deadline for all state tax returns is on the 15th day of the fourth month after the tax year closes. For instance, if your company tax year is the same as the calendar year, the deadline for your returns is on April 15.
Individuals who live in Indiana and receive income will have to file personal income tax returns. If you live outside the state but receive income form an individual or business based in Indiana, you will also have to file an individual tax return with the state.
The state imposes a flat rate for personal income. The current rate is 3.23%. Your taxable amount is equal to the adjusted gross income stated in your federal tax return.
Some counties may also have income tax rates. The board of commissioners of each county determines the rate. You will have to check this information with the local government where your primary place of business is located.
The deadline for individual income tax returns is on April 15. If that day falls on a holiday or weekend, the due date will be on the next business day.
The Indiana tax form you have to use will depend on your circumstances:
- Single, full-year resident
- Married, filing a joint return or filing separately and were both full-year residents
- IT-40 PNR
- Single, part-year Indiana resident
- Single, full-year nonresident who receives taxable income from the state
- Married, filing a joint return and was a resident during the year with a spouse who was either a part-year or full-year Indiana nonresident
- IT-40 RNR
- Full-year residents of Wisconsin, Pennsylvania, Ohio, Michigan, or Kentucky and whose income from the state was only from tips, salaries, wages, or other compensation
- IT-40 X
- Amendment to a filed individual income tax return
If your Indiana LLC sells tangible products or offers certain services, you may have to collect and pay sales taxes. The local rate will depend on the city, county, or region where your primary place of business is located. Meanwhile, the state sales tax rate is 7%.
To collect sales taxes, you will have to register with the state. You will receive a Registered Retail Merchant Certificate (RRMC) that you have to display in all of your business locations. This certificate is valid for two years. But it automatically updates without any additional renewal charges. However, if your company fails to pay its tax liabilities, your RRMC will expire.
Submitting sales tax payments and filing sales tax returns can be done online. The deadline will depend on the total amount you collect.
- Annually – Businesses that collect less than $25 per month will have to file on January 31 of the following year.
- Monthly – LLCs that collect anywhere from $25 to $1,000 per month will have to file on the 20th day of the following month.
- Early Filing – If your LLC collects more than $1,000 per month, you have to file early. The due date is 10 days sooner than for monthly filers.
Companies with employees working in the state have to withhold and pay income taxes on workers’ salaries. If this is the case for your LLC, you will need an Employer Identification Number (EIN) from the IRS. You should also have a withholding tax account with the Department of Revenue. To set up an account, file a Business Tax Application or Indiana tax form BT-1 online.
There are four deadlines for filing Indiana withholding taxes. Check the rules with the Department of Revenue.
- Annually – January 31 of the following year
- Quarterly – Last day of the month after the end of the quarter
- Monthly – 30 days after the end of the month
- Early – 20 days after the end of the month
Calculating the total taxes of your Indiana LLC requires you to understand the federal, state, and local taxes applicable to your company. You also need to know the appropriate Indiana tax form to use to avoid any issues.
Business Filing Section