Federal and State Taxes Payable by Your LLC
There are a wide variety of business taxes that your Iowa LLC will need to pay. These include tax that’s payable to the Iowa government, like Iowa sales taxes and Iowa state tax. You will also need to pay federal, self-employment and possibly payroll tax to the IRS.
If you want help with your taxes, Incfile provides a complete Business Tax Filing service.
How Your Iowa LLC Will Be Taxed
The profits of an Iowa LLC are not taxed at the business level like those of C Corporations. Instead, taxes for an Iowa LLC work as follows:
- Iowa LLC owners pay self-employment tax on business profits.
- Iowa LLC owners pay IA state tax on any profits, less state allowances or deductions.
- All LLC owners pay federal income tax on any profits less federal allowances or deductions.
- Some IA LLCs pay Iowa sales tax on products.
- Employers pay payroll tax on any salaries they pay to employees.
- Employees pay federal, state 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 Iowa personal tax returns, and that’s where you will pay those taxes.
Iowa State Income Tax Payable on LLC Earnings
As an Iowa business owner, you will need to pay IA state tax on any money you pay to yourself. These earnings flow through to your personal tax return, which is where you will pay Iowa income tax. You will be taxed at the standard rates for Iowa state taxes, and you will also get to apply regular allowances and deductions.
Any salaried employees will also need to pay personal Iowa state taxes.
The Iowa state tax rates are between 0.36 and 8.98 percent, depending on income.
Get details on the Iowa state tax here.
Iowa Sales Taxes on LLC Sales
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 IA Department of Revenue. Iowa sales tax is collected at the point of purchase. Iowa sales tax rates do vary depending on the region, county or city where you are located.
You will typically need to collect Iowa sales tax on:
- Tangible, personal property and goods that you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
- Certain services that your Iowa business might provide
Most states do not levy sales tax on goods that are considered necessities, like food, medications, clothing or gas.
Get details on the Iowa sales tax here.
Sales Tax Rates for Your Iowa LLC
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.
Federal Taxes for Your Iowa LLC: Self-Employment and Income Taxes
There are a couple different federal taxes that every LLC will need to pay, including Iowa LLCs. These are self-employment tax and federal income tax, which are taxed as “pass-through” income via your tax return forms.
Iowa LLC Federal Self-Employment Tax
All Iowa 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 Iowa 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 $40,000, you would pay self-employment tax of $6,120.
- On profits of $80,000, you would pay self-employment tax of $12,240.
- On profits of $140,000, you would pay self-employment tax of $21,420.
- On profits of $160,000, you would pay self-employment tax of $24,480.
Pay Less Self-Employment Tax by Treating Your Iowa 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.
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.
Incfile Form 2553 S Corporation Tax Election for an LLC service
Speak to your accountant for more information on reducing your Iowa LLC self-employment tax through an S Corporation tax election.
Iowa LLC Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your Iowa 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 Iowa 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 Iowa 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.
Employer Payroll Tax Withholding for Your Iowa LLC
All employers must collect and withhold payroll tax from their employees when they receive their salaries. You would normally withhold 7.65 percent of the taxable salary that you pay to your employees.
Iowa LLC Federal and State Tax Withholding
You may also choose to withhold federal and Iowa state income tax on the wages you pay to employees. Speak to your accountant for more information.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and Iowa state income tax, your employees may need to file their own tax returns.
Iowa LLC Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, like employee compensation insurance or unemployment tax. There will also be other requirements you have for employees.
Get more requirements from the Iowa Division of Labor website.
Other Taxes and Duties for Your Iowa LLC
Depending on the industry you are in, your Iowa LLC may be liable for certain other taxes and duties. For example, if you sell gasoline you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods you may need to pay certain duties. Speak to your accountant about any other taxes you may need to withhold or pay.
Estimated Taxes for Your Iowa LLC
Most Iowa LLCs will need to pay estimated taxes throughout the year, depending on the amount of income and profit you expect to make. The most common types of estimated tax are:
- Federal income tax
- Federal self-employment tax
- Iowa state tax
Most Iowa LLCs will pay estimated taxes four times a year. Speak to your accountant for more information.
FAQs on Iowa LLC Business Taxes
Does Iowa Have Sales Tax?
Yes. Iowa does have a sales tax, which may vary among cities and counties.
Does Iowa Have a State Tax?
Yes. Iowa does have a general state income tax. You can find more information above.
Do I Need to Pay Estimated Taxes?
Yes. In most cases you must pay estimated taxes on your Iowa tax, federal income tax and self-employment tax. Speak to your accountant for more information.