tax-law michigan
Under what circumstances do you have to report the income of your LLC for the state of Michigan and how often?
<p>Under what circumstances you have to report the income of your LLC and how often in the state of Michigan?</p>

<p>I have a friend with a business license operating an LLC in Michigan and he told me that he doesn't need to report his income because he hasn't had any and that it only applies if you make more than a certain amount of money.</p>

<p>I thought I'd read that you are supposed to report it monthly. He is operating a video game design studio so naturally there would be no income until the game is finished and ready to sell.</p>

<blockquote>
  <p>Under what circumstances you have to report the income of your LLC and
  how often in the state of Michigan?</p>
</blockquote>

<p>Limited liability companies are pass through entities that don't pay income tax at the entity level.</p>

<p>A limited liability company usually files no tax return of its own and reports its income on Form 1040, Schedule C for the owner, when it has a single owner.</p>

<p>A limited liability company usually files a partnership tax return on Form 1065 and allocated all items of revenue and expense to its owners in accordance with the Operating Agreement of the LLC via Schedules K-1. The owners (if they are natural persons) then report the income on Form 1040, usually on Schedule E. The Form 1065 must be completed in any year that the company has any items of income and expense.</p>

<p>A limited liability company with either one or more than one owner can also elect to be taxed as a S-corporation, in which case it files an S-corporation tax return on Form 1120S and allocations all items of revenue and expense to its owners in proportion to their percentage ownership via Schedule K-1. The owners (if they are natural persons) then report the income on Form 1040, usually on Schedule E. An LLC taxed as an S-corporation must file a tax return whether or not it has any items of income or expense in a given year.</p>

<p>In all of these cases, income is disclosed to the federal government annually by the entity (except in the case of a single person LLC which reports only on the personal Form 1040, Schedule C on an annual basis) and via Forms 1040 for each of the owners. Based upon Form 1040, the LLC owner then pays federal income taxes and self-employment taxes on that income (self-employment taxes are not due if the total amount of self-employment income for the year is less than $600). </p>

<p>While people can earn more than $24,000 of income and pay not federal income tax, almost every self-employed person who supports themselves from that employment will owe some self-employment tax which is approximately 14% of gross self-employment income, so long as total self-employment income is over the $600 threshold, although this can be reduced by Earned Income Tax Credits, per child tax credits, Obamacare tax credits, and a variety of other tax credits.</p>

<p>If someone doesn't owe income or self-employment tax even without tax credits, and that person's LLC is not organized as an S-corporation, no income tax return needs to be filed for a single person LLC, and only a partnership level income tax return needs to be filed for a multi-member LLC. But, realistically, almost all owners of LLCs that are viable businesses need to file annual tax returns upon which taxes will be due.</p>

<blockquote>
  <p>I have a friend with a business license operating an LLC in Michigan
  and he told me that he doesn't need to report his income because he
  hasn't had any and that it only applies if you make more than a
  certain amount of money. . . .  He is operating a video game design studio 
  so naturally there would be no income until the game is finished and
  ready to sell.</p>
</blockquote>

<p>This is correct. If your LLC doesn't have any profits, and the LLC has only one owner, and the LLC isn't organized as an S-corporation, then no tax return has to be filed at the LLC and there isn't any income to report on the business owner's Schedule C (although he may want to file a Schedule C to report losses that can be carried forward against future income in most cases).</p>

<p>The income reported on Form 1040 to the federal government is also reported on a parallel state income tax form on an annual basis to the state government, and on the basis of that form the LLC owner pays state income taxes (usually on Form MI-1040). There are 22 cities in Michigan that also collect income taxes based upon the amount of income taxable at the state level reported on a state income tax return. Typically, the threshold income at which someone who owns an LLC will start to owe state and local income taxes in Michigan is much lower than the threshold at which they will start to owe federal income taxes (typically after $4,000 per person in the household with fewer tax credits available).</p>

<p>As in the case of the federal return, if your LLC doesn't have any profits, and the LLC has only one owner, and the LLC isn't organized as an S-corporation, then no tax return has to be filed at the LLC and there isn't any income to report on the business owner's state tax return (which simply flows through from the federal tax return which uses federal adjusted gross income as a starting point), then no income from the LLC has to be reported to state income tax officials, although the prudent thing to do would be to claim losses that can be carried forward on the federal tax return which will flow through via federal adjusted gross income to the state tax return.</p>

<p>People who have income from LLCs are supposed to make quarterly tax payments to the federal government and state government respectively, but those payments are made without disclosing how much income the person has made to either the federal or the state government. If the owner of the LLC has an income sufficiently low that no net income taxes and self-employment taxes will be due on the LLC income due to the standard deduction or itemized deductions, above the line "adjustments to income" and tax credits, then there is no penalty for not filing quarterly estimated tax returns because the estimated tax is zero. </p>

<p>In an LLC organized as an S-corporation, the owner-employee also often receives a salary which is subject to federal and state income tax withholding, FICA taxation, FUTA taxation, and local taxes such as a local "head tax". The frequency with which withholding taxes must be paid depends upon the number of employees and the amount of taxes withheld on average. If there are many employees and the size of the payroll is large, withholding taxes are due monthly. If there are few employees and the size of the payroll is small, withholding taxes are frequently due only quarterly.</p>

<p>Companies that collect sales taxes because the sell sales taxable goods on a retail basis, typically have to report their gross taxable retail sales on a monthly basis and pay sales taxes to the state government (and sometimes also to local governments) each month. But, gross taxable retail sales are not income.</p>

<blockquote>
  <p>I thought I'd read that you are supposed to report it monthly.</p>
</blockquote>

<p>You are mistaken. Withholding taxes in larger businesses and sales taxes in businesses that have to collect sales taxes are reported monthly, but income from an LLC is not reported monthly.</p>
