How Your LLC Will Be Taxed

Below, we explain the main business taxes required in Oklahoma, including state income and sales tax, as well as self-employment, payroll and federal taxes. The profits of an LLC aren’t taxed at the business level like C Corporations. Instead, taxes are as follows:

1

Owners pay self-employment tax on business profits.

2

Owners pay state income tax on any profits, minus state allowances or deductions.

3

Owners pay federal income tax on any profits, minus federal allowances or deductions.

4

Some LLCs pay Oklahoma sales tax on products.

5

Employers pay payroll tax on any wages paid to employees.

6

Employees pay federal and state income taxes on their earnings.

For any LLC owners, managers or members who receive profits from the business, items 1, 2 and 3 fall under pass-through taxation. Profits are reported on federal and state personal tax returns.

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State Taxes for LLCs

There are four main types of state tax you must pay to the Oklahoma Tax Commission: income, sales and use.

Oklahoma Income Tax

As a business owner, you’ll need to pay Oklahoma income tax on any money you pay to yourself. These earnings flow through to your personal tax return. You’ll be taxed at the standard rates for Oklahoma, and you’ll be able to apply regular allowances and deductions.

Any employees you have will also need to pay Oklahoma income tax.

The Oklahoma income tax rate ranges between 0.5 and 5.25 percent, depending on your earnings and filing status (filing individually or filing jointly).

Oklahoma Sales Tax

If you sell physical products or provide certain types of services, you may need to collect sales tax at the point of purchase and then pay it to the Oklahoma Tax Commission. The Oklahoma sales tax rate varies depending on the region, county or city where the purchase is made.

You’ll typically need to collect Oklahoma sales tax on:

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

Most states don’t levy sales tax on goods that are considered necessities, such as food, medications, clothing or gas.

Oklahoma Use Tax

If you purchase physical products outside the state for use in Oklahoma, you may need to pay use tax. For example, if you buy furniture for your Oklahoma business from a company in a state that doesn't have a sales tax, you'll be responsible for paying the Oklahoma use tax.

The current Oklahoma use tax rate is 4.5 percent, and local municipalities may add their own use tax in addition to the state's rate. The Oklahoma use tax is paid directly to the Oklahoma Tax Commission.

Oklahoma Franchise Tax

While Oklahoma does have a franchise tax, it only applies to corporations. Limited liability companies are exempt from paying the Oklahoma Franchise Tax.

Federal Taxes for LLCs

As the owner of an LLC, you must pay self-employment tax and federal income tax, which are taxed as “pass-through” income. Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Oklahoma LLC is paying the correct amount.

Federal Self-Employment Tax

All members or managers who take profits out of the LLC are required to pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA), which covers Social Security, Medicare and other benefits. It applies to all the earnings you withdraw from your business. The current self-employment tax rate is 15.3 percent.

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

  • On profits of $30,000, you would pay self-employment tax of $4,590
  • On profits of $60,000, you would pay self-employment tax of $9,180
  • On profits of $120,000, you would pay self-employment tax of $18,360
  • On profits of $140,000, you would pay self-employment tax of $21,420

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

Provided your business meets certain requirements, the Internal Revenue Service grants LLCs to be treated as S Corporations for tax purposes. This can help you reduce the amount of self-employment tax you owe 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.

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.

Federal Income Tax

You must also pay regular federal income tax on any earnings you take out of your LLC. This amount 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 in areas such as healthcare and some retirement plans.

Speak to your accountant for more information.

Employee and Employer Taxes

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

Employer Payroll Tax Withholding

All employers must withhold federal taxes from their employees’ wages. You’ll withhold 7.65 percent of their taxable wages, and your employees will also be responsible for 7.65 percent, totaling the current federal tax rate of 15.3 percent.

Speak to your accountant for more information.

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 what industry you operate in, 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 pay.

Estimated Taxes

Most LLCs are required to pay estimated taxes throughout the year, depending on their adjusted gross income, taxable income, taxes, deductions, and credits for the year. The most common types of estimated tax are:

  • Federal income tax
  • Federal self-employment tax
  • Oklahoma state tax

Most LLCs pay estimated taxes four times a year. Learn more on the IRS website, and speak to your accountant for more information.

FAQs on Oklahoma Business Taxes

Does Oklahoma Have Sales Tax?

Yes. Oklahoma has a flat sales tax of 4.5 percent. Local municipalities may impose their own sales taxes as well, in addition to the state's flat rate. You can find more information above.

Does Oklahoma Have a Franchise Tax?

Yes, but LLCs are exempt from paying the Oklahoma franchise tax. You can find more information above.

Does Oklahoma Have a State Income Tax?

Yes. Oklahoma does have a 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 to the state and federal governments. You can find more information above.

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