How Your LLC Will Be Taxed
In this guide, we’ll cover the main business taxes required in North Dakota, including payroll, self-employment and federal taxes. The profits of an LLC aren’t taxed at the business level like
C Corporations. Instead, taxes are as follows:
Items 1, 2 and 3 fall under pass-through taxation for any LLC owners, managers or members who receive profits from the business. Profits are reported on federal and state personal tax returns.
Incfile provides a complete Business Tax Filing service.
State Taxes for LLCs
There are two types of state tax you might have to pay to your state Tax Commissioner: North Dakota state income tax, and North Dakota state sales tax.
North Dakota Sales Tax
If you sell physical products or certain types of services, you may need to collect sales tax and then pay it to the North Dakota Department of Revenue. North Dakota's sales tax is generally collected at the point of purchase. There is a single, statewide static tax rate of 5% in North Dakota.
In addition to the statewide sales tax, many cities and counties also levy a local sales tax for a combined North Dakota tax ranging from 5% to 8.5%.
Most states do not levy sales tax or gross receipts tax on goods that are considered necessities, like food, medications, clothing or gas. Check with the North Dakota Department of Revenue to confirm whether your business is required to collect North Dakota sales 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 North Dakota 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.
Speak to your accountant or professional tax preparer for more information on reducing your LLC self-employment tax through an S Corporation tax election.
You can do this by making an “S Corporation Tax Election” with the IRS using Form 2553. We can file your Form 2553 with the IRS on your behalf.
Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your North Dakota 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 profit and income you expect to make. The most common types of estimated tax are:
Most LLCs will pay estimated taxes on a quarterly basis. Learn more on the IRS website, and speak to your accountant for more information.
FAQs on North Dakota Business Taxes
Yes, North Dakota has a statewide sales tax of 5%, and counties and cities may levy an additional local tax. You can read more about it above.
Yes. North Dakota has a graduated income tax ranging from 1.1% to 2.9%. You can read more about it above.
No, North Dakota does not levy a franchise tax.
Yes. In most cases, you must pay estimated taxes to the state and federal governments. You can find more information above.