How Your LLC Will Be Taxed
In this guide, you'll learn about the main Nebraska business taxes you'll be responsible for, including sales, self-employment, payroll and federal taxes. Profits from an LLC aren’t taxed at the business level the way they are in C Corporations. Instead, they're as follows:
State Taxes for LLCs
There are two state taxes you must pay to the Nebraska Department of Revenue: income and sales. Depending on how your LLC is taxed, you may also need to pay corporate income tax.
Nebraska Income Tax
As an owner of a business, you’re required to pay Nebraska income tax on any money you pay yourself. These earnings flow through to your personal tax return. You’ll be taxed at the standard rates for Nebraska, and you’ll get to apply regular allowances and deductions.
Any employees you hire will also need to pay Nebraska state income tax.
Nebraska income tax rates range between 2.46 and 6.84 percent, depending on how much you earn.
Nebraska Sales Tax
If you sell physical products (such as electronics, books, cars, furniture, appliances, raw materials, etc.) or certain services, you may need to collect Nebraska sales tax at the point of purchase. You'll remit the taxes you collect to the Nebraska Department of Revenue.
Most states don’t levy sales tax on goods that are considered necessities, such as food, medications, clothing or gas.
The Nebraska sales tax rate is 5.5 percent statewide. Local taxing jurisdictions, such as cities and counties, may impose additional sales tax.
Use our sales tax calculator to get an idea of what you'll need to pay, but always check with your accountant and the NE Comptroller to find out whether your business is required to collect sales tax and ensure you remain in compliance.
Nebraska Franchise Tax
Some states — including Nebraska — levy a tax on certain businesses for the right to exist as a legal entity and do business in the state. This is usually called a franchise tax, transaction tax or privilege tax. In Nebraska, it's called a corporate income tax.
LLCs are exempt from paying this tax, unless they file their taxes as corporations.
Talk to your accountant or tax professional to find out whether you're required to pay this tax.
Federal Taxes for LLCs
As the owner of an LLC, you must pay self-employment tax and federal income tax, both of which are levied as “pass-through taxation."
Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Nebraska LLC is paying the correct amount.
Federal Self-Employment Tax
All members or managers who take profits out of the LLC must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA) and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.
You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.
Pay Less Self-Employment Tax by Treating Your LLC As an S Corporation
The Internal Revenue Service allows an LLC to be treated as an S Corporation for tax purposes, provided your business meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary and other income as distributions or withdrawals.
You do this by filing Form 2553, also known as an S Corp Election form, with the IRS. Incfile can also file the form for you. Use our S Corp Tax Calculator to get an idea of how much money you could save with this election.
Consult with your accountant or tax advisor for more information on reducing your LLC self-employment tax through an S Corporation tax election.
Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your LLC. The amount of income tax you pay depends on your earnings, current income tax bracket, deductions and filing status.
You only pay federal income tax on profits you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus 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
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and state income tax, your employees may need to file their own tax returns.
Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, such as employee compensation insurance or unemployment tax.
Other Taxes and Duties
Depending on your industry, you 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 or duties you may need to withhold or pay.
Most LLCs must pay estimated taxes throughout the year, depending on the amount of revenue you expect to generate. The most common types of estimated tax are: