Tennessee Business Taxes & Your LLC
There are a wide variety of business taxes that your Tennessee LLC will need to pay. These include tax that’s payable to the Tennessee government, like Tennessee sales taxes. 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 Tennessee LLC Will Be Taxed
The profits of a Tennessee LLC are not taxed at the business level like those of C Corporations. Instead, taxes for a Tennessee LLC work as follows:
- Tennessee LLC owners pay self-employment tax on business profits
- All LLC owners pay federal income tax on any profits less federal allowances or deductions
- Some TN LLCs pay Tennessee 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 Tennessee personal tax returns, and that’s where you will pay those taxes.
Tennessee Business Taxes Payable to the TN Government
Tennessee does not charge a state tax on income, only on dividends. You will need to pay sales tax to the Tennessee Department of Revenue if you sell products.
Tennessee State Income Tax Payable on LLC Earnings
Tennessee does not charge state income tax on earnings; you will only pay tax on dividend earnings or interest received.
Tennessee 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 TN Department of Revenue. Tennessee sales tax is collected at the point of purchase.
You will typically need to collect Tennessee sales tax on:
- Tangible, personal property and goods you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
- Certain services that your Tennessee 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 Tennessee sales tax online here.
Tennessee 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.
Federal Taxes for Your Tennessee LLC: Self-Employment and Income Taxes
There are a couple different federal taxes that every LLC will need to pay, including Tennessee LLCs. These are self-employment tax and federal income tax, which are taxed as “pass-through” income via your tax return forms.
Tennessee LLC Federal Self-Employment Tax
All Tennessee 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 Tennessee 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 $80,000, you would pay self-employment tax of $12,240
- On profits of $120,000, you would pay self-employment tax of $18,360
- On profits of $160,000, you would pay self-employment tax of $24,480
Pay Less Self-Employment Tax by Treating Your Tennessee 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 Tennessee LLC self-employment tax through an S Corporation tax election.
Tennessee LLC Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your Tennessee 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 Tennessee 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.
Employer and Employee Taxes for Your Tennessee 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 Tennessee 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.
Employer Federal Tax Withholding for Your Tennessee LLC
You may also choose to withhold federal 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 Tennessee state income tax, your employees may need to file their own tax returns.
Tennessee 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 Tennessee Department of Labor and Workforce Development website.
Other Taxes and Duties for Your Tennessee LLC
Depending on the industry you are in, your Tennessee 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 Tennessee LLC
Most Tennessee 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 taxes are:
- Federal income tax
- Federal self-employment tax
Most Tennessee LLCs will pay estimated taxes four times a year. Speak to your accountant for more information.
FAQs on Tennessee LLC Business Taxes
Does Tennessee Have Sales Tax?
Yes. Tennessee does have a sales tax, which may vary among cities and counties.
Does Tennessee Have a State Tax?
No. Tennessee does not 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 for your state, federal and self-employment taxes. Speak to your accountant for more information.