Running a limited liability company (LLC) in Iowa comes with various responsibilities. One of these is the submission of formal paperwork with the state. Along with the formation paperwork, you will have to prepare for ongoing reporting and tax filing obligations.
LLC Taxation
When it comes to taxation, LLCs do not get taxed at a corporate level. That means that the default treatment of this type of company is pass-through taxation.
- The owners, called members, report and pay self-employment taxes on the profits they get from the company.
- Members pay federal income taxes on any profit from the business minus federal allowances and deductions.
- Members pay state income taxes on the profits they get from the company minus any state allowances and deductions.
- Depending on the company’s activities, some Iowa LLCs pay sales taxes.
- Companies with employees pay payroll taxes on the workers’ salaries.
- Employees pay federal, state, and payroll taxes on their salaries.
The first three items show how the pass-through taxation treatment of an LLC works. They mean that the members who receive profits from the company will have to report the income on their federal and personal tax returns in Iowa.
Federal Income Tax
As stated earlier, LLCs do not pay at a business level. So, you do not have to worry about federal income taxes. The default tax treatment of the Internal Revenue Service (IRS) for single-member LLCs is as sole proprietorships. Meanwhile, multi-member LLCs are treated as partnerships in terms of taxation.
Tax obligations are passed on to the members, who need to pay self-employment tax. The current rate is 15.3%. If you are the sole owner of your company, report all profits and losses on your personal tax return to the IRS by submitting a completed Tax Form 1040. Use Schedule C to include the necessary information. You may have to use additional Schedules depending on the source of your income. Meanwhile, owners of multi-member LLCs have to use form 1065.
Some LLCs find it more advantageous to be taxed as a C corporation. If that is the case for you, then you will lose the pass-through tax treatment. Instead, you will have to file business taxes to the IRS. Submit a completed form 1120 for this report. If you want to elect S corporation status, apply using form 2553. Then, file form 1120-S to report your taxes.
State Personal Income Taxes
Almost all individuals who live and work in Iowa need to pay state income taxes. That applies to members of LLCs as well.
If the owners of your company have any of the following characteristics, then they will have to report state personal income taxes:
- Individual residents who have a net income of at least $9,000
- Married residents who have at least $13,500 net income
- Part-year Iowa residents
- Non-residents who earn income in Iowa, except those who reside in Illinois
- Estates and Trusts
The tax rate for individual income depends on the amount that you earn.
- Below $1,638 – 0.33%
- $1,638+ – 0.67%
- $3,276+ – 2.25%
- $6,552+ – 4.14%
- $14,742+ – 5.63%
- $24,570+ – 5.96%
- $32,760+ – 6.25%
- $49,140+ – 7.44%
- $73,710+ – 8.53%
Sales Tax
Companies that sell physical products to customers in the state have to collect sales taxes and pay them to the Department of Revenue (DOR). You also need to register with the DOR for this purpose. You can do this using Tax Form 78-005a. Once you successfully register, you will receive a sales tax permit. Then, you have to submit sales tax returns periodically.
Business Tax
If you happen to choose to be taxed as a corporation, then your company needs to file a separate tax return for corporate income taxes. Use Tax Form IA-1120 for this type of tax. The amount you will have to pay will be based on your company’s net taxable income.
- Below $25,000 – 6%
- $25,000+ – 8%
- $100,000+ – 10%
- $250,000+ – 12%
The state also offers an alternative minimum tax. It will apply if the amount due is higher than the result under the abovementioned rates. The rate is 7.2%. Submission of state tax returns should be done on or before the last day of the fourth month after the end of the tax year. If your company follows the calendar year, your deadline will be on April 30 of every year.
Employer Taxes
If your Iowa company hires employees, then you have to pay employer taxes. Register with the DOR for this purpose using Form 78-005a. Then, you will have to withhold and pay taxes periodically. Use Form 44-095 for this report. Aside from your periodic filing, you should also reconcile all tax withholding annually using Form 44-007.
You may also need to register for state unemployment insurance taxes with Workforce Development. Submit a report quarterly on all wages and pay the unemployment insurance tax.
Other Possible Taxes
Depending on the industry your LLC is in and the location of its primary place of business, you may have to deal with other taxes. These may include the following:
- Accommodations
- Car Sharing
- Cigarette and Tobacco
- Fuel
- Liquor
- Local
- Rental
- Tour
- Transient
- Vehicle
- Vehicle Surcharge
When it comes to the tax obligations of your company, make sure you consider federal, state, and local taxes. Think about the circumstances and activities of your business entity. Doing these can help you prevent any mistakes. If you fail to pay the right amount at the right time, then you may face penalties.
Other Filing Requirements
Iowa also requires LLCs to submit biennial reports. The deadline is March 31 of every odd-numbered year. The Secretary of State will send a notification to remind you of the due date. If you file this report online, you will have to pay $30. Meanwhile, mailed submissions cost $45.
Getting Help
Iowa LLCs have to comply with various tax and reporting obligations. Failure to do so can lead to the loss of your good standing status with the state. In worse cases, the state may even administratively dissolve your company. If you need help in handling or understanding other compliance requirements in the state, consult our team of experts at DoMyLLC.
Business Filing Section