Failure to file the necessary reports, Maryland tax forms, and pay the corresponding fees can lead to penalties or a bad status with the state.
Many new entrepreneurs choose this business structure because of the protection it offers to the personal assets of the owners. Another reason is that it lets the company choose pass-through taxation. The members can opt to report the profits and losses of the business entity on their individual tax returns.
This type of business is often not subject to federal taxes. However, the state may collect taxes. Generally, you will not be taxed at the business level.
Here is how LLC taxes work:
- The members will pay self-employment taxes on your business profits.
- The members will pay Maryland state taxes on all profits minus the state allowances and deductions.
- All owners will pay federal income taxes on any profits minus the federal allowances and deductions.
- Some Maryland LLCs may need to pay sales taxes on their products.
- Maryland employers will have to pay payroll taxes on the salaries that they give to their employees.
- Employees will have to pay federal, state, and payroll taxes on their salaries.
The first three items will be taxed as pass-through income for the members or managers who get profits from the business entity. You will have to report all profits on your federal and personal tax returns. Make sure you have the appropriate Maryland tax form for each filing.
Federal Income Tax
Usually, Maryland LLCs do not directly pay taxes to the federal government. That is because their default taxation status is either as a sole proprietorship for single-member LLCs or a partnership for multiple-member LLCs.
The members will report company-related incomes and losses on their tax return using Internal Revenue Service (IRS) form 1040 Schedule C. However, you may need to attach additional schedules based on your income. Meanwhile, the owners of multiple-member LLCs have to use form 1065.
If you choose to be taxed as a C-Corporation, you will need to file on a federal level. Use form 1120 for this. If you decide to elect your company for S-Corporation taxation, you also have to file on a federal level. However, you will need form 1120-S.
Personal Property Returns
Maryland requires LLCs to file personal property returns (PPRs) every year. It will also serve as your annual report. Generally, the Department of Assessments and Taxation (DAT) refers to this as both an annual report and a return. You have to file a PPR form in paper form. You can download a copy of the Maryland tax form from the website of the DAT. You have to file by April 15 of every year and pay the $300 fee.
Business Licenses And Permits
Depending on your business activities, you may have to acquire certain licenses and permits from federal, state, and regional agencies. These come with associated fees that you may have to pay either on a regular or one-off basis.
Business licenses and permits are based on:
- The industry your company is in
- The location of your business
- The type of business you are running
Operating a business in Maryland without the appropriate licenses and permits can expose your company to fines and risks from local, state, and federal governments.
Business Taxes And Maryland Tax Forms To File
Most LLCs are pass-through tax entities. That means that the income taxes fall on the members. However, the state requires you to pay income taxes on those that can be allocated to members who are non-residents. You will have to pay it to Maryland’s Comptroller. Check the current tax rates and forms on their website.
If you choose to have your company be taxed as a corporation, you will have to file form 8832 with the IRS. If this is the case, you will also have to pay a corporate income tax. In Maryland, it is 8.25% of the net income that can be allocated to the state.
Employer Taxes
If your company hires employees, you will have to pay employer taxes. On a federal government level, you need to have an Employer Identification Number (EIN). Determine your tax obligations with the IRS. Here are the taxes you will have to check:
- Payroll Withholding Tax – You will have to collect and withhold payroll taxes from your employees’ salaries. The rate is normally 7.65% of the taxable salary.
- Federal And State Tax Withholding – If you want, you can also choose to withhold federal and state income taxes on the wages of your employees. Check this with your company’s accountant.
- Employee’s Tax Returns – It does not matter whether you withhold federal or state income taxes. Your employees may have to file their individual tax returns.
Sales And Use Taxes
Maryland LLCs that sell goods will have to collect and pay sales taxes. You will need to file state sales and use tax returns every year using Maryland tax form 202. You can get a copy of the form online or request printed copies. Generally, you will have to collect sales taxes on the following:
- Tangible, personal property and goods you are selling
- Certain services that your company provides
Other Taxes And Duties
Depending on the industry your company is in, you may be liable for some taxes. For example, you will have to pay fuel taxes if you sell gasoline. Importing or exporting goods also requires you to pay certain duties.
Estimated Taxes
Most LLCs in Maryland will have to pay estimated taxes throughout the whole year. It will depend on the amount of income and profit that you are expecting to make. Here are the most common types of estimated taxes:
- Federal Income Tax
- Federal Self-Employment Tax
- State Tax
In most cases, Maryland business entities pay estimated taxes around four times per year. If you want to learn more about the necessary taxes that you may have to pay for, consult with experts. You can talk to our team of experts at DoMyLLC. We also offer business compliance services. Contact us today to find out how we can help.
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