Business Taxes for Illinois LLCs

Business taxes are a fact of life, and your IL LLC will need to pay a variety of taxes to both the federal and Illinois governments.

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How Your Illinois LLC Will Be Taxed

In this guide, we’ll cover all the main business taxes required in Illinois, including self-employment, payroll, federal and Illinois sales tax. The profits of an Illinois LLC are not taxed at the business level like those of C Corporations. Instead, tax for an Illinois LLC works as follows:

  • 1

    Illinois LLC owners pay self-employment tax on business profits

  • 2

    Illinois LLC owners pay IL state tax on any profits, less state allowances or deductions

  • 3

    All LLC owners pay federal income tax on any profits less federal allowances or deductions

  • 4

    Some IL LLCs pay Illinois sales tax on products

  • 5

    Employers pay payroll tax on any salaries they pay to employees

  • 6

    Employees pay federal and and payroll tax on their earnings

Items 1, 2 and 3 are taxed as “pass-through” income for any LLC owners, managers or members who receive profits from the business. Any profits are reported on federal and Illinois personal tax returns, and that’s where you will pay those taxes.

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State Taxes for Illinois LLCs

There are two main types of tax that you will pay to the Illinois Department of Revenue: Illinois state income tax and Illinois state sales tax.

Illinois State Income Tax Payable on LLC Earnings

As an Illinois business owner, you will need to pay IL state tax on any money you pay to yourself. These earnings flow through to your personal tax return, which is where you will pay Illinois income tax. You will be taxed at the standard rates for Illinois state taxes, and you will also get to apply regular allowances and deductions.

Any salaried employees will also need to pay personal Illinois state taxes.

The Illinois state tax rate is 4.95 percent of net income.

Illinois Sales Tax

If you sell physical products or certain types of services, you may need to collect sales tax (also known as sales and use tax) and then pay it to the IL Department of Revenue. Illinois sales tax is collected at the point of purchase. Illinois sales tax rates do vary depending on the region, county or city where you are located.

You will typically need to collect Illinois sales tax on:

  • Tangible, personal property and goods that you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
  • Certain services that your Illinois business might provide

Most states do not levy sales tax on goods that are considered necessities, like food, medications, clothing or gas.

Illinois Sales Tax Rates

Sales tax rates do vary between states, counties and cities. Typically, the state will set a base sales tax rate, then specific counties and cities may levy small additional sales tax amounts on top of that. Here are the sales tax rates for the major cities in Illinois:

  • Chicago, IL sales tax rate is 10.25 percent
  • Aurora, IL sales tax rate is 8.25 percent
  • Rockford, IL sales tax rate is 8.75 percent
  • Naperville, IL sales tax rate is 7.75 percent

Federal Taxes for Illinois LLCs

There are a couple different federal taxes that every LLC will need to pay, including Illinois LLCs. These are self-employment tax and federal income tax, which are taxed as “pass-through” income via your tax return forms.

Federal Self-Employment Tax

All Illinois LLC business members or managers who take profits out of the LLC will need to pay self-employment tax. This tax is also known as FICA, Social Security or Medicare tax. It applies to all the earnings you withdraw from your Illinois business. The current self-employment tax rate is 15.3 percent.

You will be able to deduct your business expenses from your income when working out how much self-employment tax you owe. Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:

  • On profits of $20,000, you would pay self-employment tax of $3,060
  • On profits of $50,000, you would pay self-employment tax of $7,650
  • On profits of $90,000, you would pay self-employment tax of $13,770
  • On profits of $120,000, you would pay self-employment tax of $18,360

Pay Less Self-Employment Tax by Treating Your Illinois LLC As an S Corporation

The Internal Revenue Service allows LLCs to ask to be treated as an S Corporation for tax purposes. This can help you reduce the amount of self-employment tax that you pay by declaring some of your income as salary and other income as distributions or withdrawals. Speak to your accountant for more information on reducing your Illinois LLC self-employment tax through an S Corporation tax election.

Treating Your LLC As an S Corp Can Help You Save Money

You can do this by making an “S Corporation Tax Election” with the IRS using a form known as Form 2553. We can file your Form 2553 with the IRS on your behalf.

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Federal Income Tax

You must also pay regular federal income tax on any earnings you take out of your Illinois LLC. The amount of income tax you pay depends on your earnings, current income tax brackets, deductions and how you file.

You only pay federal income tax on your Illinois LLC profits that you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus LLC business expenses and other deductions for areas such as healthcare and some retirement plans. Speak to your accountant for more information.

Employee and Employer Taxes for Your Illinois LLC

If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your own unique situation.

FAQs on Illinois LLC Business Taxes

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