Many entrepreneurs choose the limited liability company (LLC) business structure because it protects the assets of the owners from liability in case the company encounters some problems. Another reason is that it allows for pass-through taxation. Each member can report the profits and losses of the company on their personal tax returns. This form of business is also not subject to federal taxes. However, states may collect annual taxes.
Generally, your company will not be taxed at the business level. Here is how your taxes work:
- The owners will pay self-employment taxes on the profits of the business.
- The owners will pay Oregon state taxes on any business profit minus the state allowances and deduction.
- All owners will pay federal income taxes on any profits minus the federal allowances and deductions.
- LLCs that have employees will pay payroll taxes on the workers’ salaries.
- Your employees will pay federal, state, and payroll taxes on their salaries.
The first three items are taxed as pass-through income for the LLC members and/or managers who receive profits from the company. You will have to report all profits on federal and personal tax returns in Oregon.
Federal Income Tax
In most cases, Oregon LLCs do not have to pay taxes directly to the federal government since their default status for taxes is either a sole proprietorship for a single member or a partnership for multiple members.
Members usually report any income or losses on their personal tax return using the Internal Revenue Service (IRS) tax form 1040. It is often reported on Schedule C. But, depending on where you get your income, you may need to attach additional Schedules. Meanwhile, members from multiple-member LLCs use form 1065 since their IRS default tax is a partnership.
If you choose to be taxed as a C Corporation, you will have to file on a federal level using Form 1120. If you elect S Corporation taxation, you also need to file federally. But the form you have to use is 1120-S.
State Income Tax
Oregon residents need to report all incomes and losses on the state income return using tax form OR-40, 40P, or 40N. Here are the details you need to remember so that you will not end up filing the wrong form:
- Or-40 – For full-year Oregon residents
- Or-40P – For part-year Oregon residents
- OR-40N – For nonresidents
The state also has specific guidelines depending on the amount of gross income. You can check this from the website of the Department of Revenue.
Other Possible Taxes
Oregon may also impose other types of taxes depending on your business activities. These may include any of the following:
- Amusement Device
- Combined Payroll
- Corporate Income and Excise
- Emergency Communications
- Estate
- Fiduciary
- Hazardous Substance
- Other Agency Accounts
- State Lodging
- Timber
- Tobacco Consumer Products and Cigarette Consumer
- Withholding
Sales or Use Taxes
The state of Oregon does not impose a general sales tax or a transaction tax. If you are buying goods outside the state and need a Resale or Reseller Certificate, you can use the Department of Revenue Business Registry Resale Certificate form. With this, you can exempt company transactions from the state’s sales, use, and transaction taxes. However, you have to keep in mind that some states may refuse to accept this form and request you to file using their forms.
Local Taxes
Oregon businesses may also need to file and pay other state or local taxes. Depending on the city, town, or county where your company is, the requirements and forms may vary. To get the appropriate tax form, you will have to contact your local government office.
Excise Tax
If your LLC classifies as a partnership, then it will have to pay a minimum of $150 excise tax. If it is a disregarded entity, then you will not have to pay any business income taxes. If you elect to be treated as a corporation, you will have to pay corporation excise tax. The state assesses this tax based on your company’s income from its operations within Oregon. There are two marginal rates. The first one is 6.6% and applies to the first $10 million income. The second one is 7.6% and is for all income that is above $10 million.
Employer Tax
If you have employees in Oregon, you will have to pay federal employer tax and state tax obligations. You can start by filing a Combined Employer’s Registration form. After that, you will be withholding and paying certain employee income taxes to the Department of Revenue. You will have to do this periodically. You will also have to file Form WR, which will reconcile all tax withholding. Check if you will also need to register for the payment of state unemployment insurance taxes. You can register for this by filing Form CBR with the Employment Department. After that, you will have to report on wages using Form 132 and submit a quarterly tax report.
Doing Business in Other States
If your LLC does business in other states, you will have to register with them too. They may also impose taxes depending on the nature of your operations and activities within their borders. Check all requirements and obligations for foreign businesses with the office of their Secretary of State.
Calculating tax obligations, whether on a federal level, state, or locally, can be a bit complicated. It depends on the specific circumstances of your business. Doing things the wrong way can also have negative implications that will affect your company.
Fortunately, you do not have to handle everything on your own. You can rely on a third-party organization like DoMyLLC to help you with business compliance. For more information on the formation or managing of an Oregon company, contact our team of experts at DoMyLLC. You can discuss your company’s needs so that we can come up with a personalized solution that will fit your circumstances. We also offer live support during business hours.
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