Virginia LLC Tax Structure 2025 – How LLCs are Taxed

In general, a Limited Liability Company (LLC) in Virginia does not pay any taxes like corporations and other business structures. It has a pass-through taxation instead of business or corporate tax. Besides, the LLC tax structure includes state and federal mandatory taxes. LLCs are required to choose the tax structure at the time of filing the company.

IRS (Internal Revenue Service) allows an LLC in Virginia to choose its preferred classification of tax at the beginning of the LLC filing. For example, a single-member LLC is taxed as a sole proprietor, and a multi-member LLC is taxed as a partnership. As there is no fixed tax structure for LLCs, everyone certainly wants to opt for the most beneficial one. On this page, LLCBuddy editors shared all about the tax structure in Virginia LLC.

How Does Taxation Work in a Virginia LLC

For an LLC in Virginia, the tax structure is very simple and flexible. First of all, every LLC has the advantage of a pass-through taxation. On the other hand, an LLC can choose the desired tax structure at the time of formation. There are two ways an LLC can be taxed,

As a Sole Proprietorship

A single-member LLC is usually considered a sole proprietorship company. Hence, by default, it is taxed as a sole proprietorship. A single-member LLC is also called a disregarded entity. Under the U.S. tax law, it is assumed that a single-member LLC is owned by an individual (& not by another LLC), so the U.S. tax law levies rules on it as a Sole Proprietor. A single-member LLC’s owner (Sole Proprietor) has to report all the income of the LLC via their own income tax return.

As mentioned earlier, the single owner of the LLC is treated as the Sole proprietor of the LLC & has to file the Self-Employment Tax on all of the LLC’s earnings. Virginia does not levy State Income Tax, so a single-member LLC must file only the Federal Income Tax.

As a Partnership

Any LLC with more than one owner is referred to as a Multi-Member LLC & it is taxed as a partnership by default. Similar to the Single Owner or Single Member LLC, this LLC is also a pass-through entity. This means that the income of the LLC passes through the income of the members & they have to file taxes through their own earnings.

Partnership or Multi-Member LLC has to pay taxes similar to those of the Single-Member LLC. If the Partnership LLC is directly owned by individuals, it is exempt from the Franchise Tax. All the members of the Multi-Member LLC are liable to pay Self-Employment Tax & Federal Income Tax.

Pass-through Taxation for Virginia LLC

A Limited Liability Company (LLC) is a form of business structure that consists of members and/or managers (owners). The biggest advantage of an LLC in Virginia is the pass-through taxation. The limited liability company does not pay any federal income taxes based on the revenue of the company. Instead, the tax liability passes through to each member of the LLC. Furthermore, the members will have to pay individual income tax based on their income.

Both for a single-member LLC and a multi-member LLC in Virginia, the tax burden passes through to the member(s). In other cases, if an LLC chooses to be taxed as a Corporation, the LLC will have to pay federal income tax based on its revenue and profit. There is no pass-through taxation for C-Corp and S-Corp.

Options to Change Default Tax Classification

The LLCs are categorized either as sole proprietorships or as partnerships, depending on the number of members the LLC has. This is the default tax classification applicable to LLCs. However, the LLCs have an option of changing the default classification & opting to register under the following categories for taxation purposes:

C-Corporation

An LLC can prefer to be treated as a C-corporation by filing Form 8832 (the Entity Classification Election Form) with the IRS. The C-corporation is a regular corporation that is subject to corporate taxes & it is not a pass-through entity.

C-Corporation Taxes

An LLC taxed as a C-Corporation is not a pass-through entity. In a C-corporation, the members/shareholders/ owners are taxed separately. The shareholders of the C-corporation are taxed twice on the dividends that they earn. The dividends of the shareholders are taxed at the corporate level, with a Corporate Tax filed with Form 1120 & at a Shareholder level, an Income Tax filed with Form 1040. Shareholders are subject to Federal Income Tax.

S-Corporation

The S-Corporation is the most common type of corporate structure used by small businesses. It was created to provide corporations with limited liability protection while maintaining the benefits of being a separate legal entity. An LLC can prefer to be treated as an S-Corporation by filing Form 2553. S corporations are small business corporations that choose to pass through the corporate income, losses, deductions, & credits to the shareholders for the purposes of Federal Taxes.

S-Corporation Taxes

An S-Corporation is similar to an LLC except that it is treated by the IRS as a corporation for tax purposes. S-Corps do pay corporate income taxes; however, they are still considered disregarded entities for federal tax purposes.

Like an LLC, an S-Corp reports its annual earnings on a separate Schedule E on the member’s personal account. An S-Corp is treated by the IRS much like a partnership for tax purposes. Unlike a Partnership, in an S Corporation, the shareholders are required to pay Federal self-employment tax on their share of the company’s profits.

LLC Taxes to be Paid in Virginia

The Virginia Tax Commission has imposed below mentioned state taxes on an LLC operating in the state, based on the Virginia classification of LLC taxes:

State Income Tax

Income tax is levied on the amount earned from your business. Virginia levies standard rates of income tax that are applicable for deductions and allowances. The income tax will be charged to all of your employees. In Virginia, charges of income tax vary from 2% to 5.75% based on the amount earned.

State Sales & Use Tax

Typically, any product or service sold, rented out, or leased within the boundaries of Virginia is subject to Sales and use tax unless it comes under the list of exemptions. For most of the regions, the sales tax is chargeable at the rate of 5.3%. Some counties or cities may have an additional sales tax. However, food and hygiene products are charged at 2.5%.

State Franchise Tax

This special type of tax is levied by several states. However, some of the states do not apply Franchise tax on LLCs. Virginia is one of them.

Federal Self-employment Tax

All members of management who make gains out of the LLC must pay self-employment tax. The Federal Insurance Contributions Act (FICA) regulates federal income taxes. The current self-employment tax rate in the state of Virginia is 15.3 percent. You’ll be able to reduce some of your business payments from your salary when calculating how much self-employment tax you owe.

Federal Income Tax

Similar to state income tax, your profits earned from the LLC are subject to federal income taxes as well. Whatever amount you have to pay for income tax is calculated on the basis of the amount earned, your filing status, any sort of allowances, and the tax bracket.

Only the profits are subject to the federal income tax. This means that the tax is not applicable on any kind of allowances and deductions, like tax-free income, your expenses made for the purpose of business, any sort of healthcare plans, etc.

Employer & Employee Tax

If you have employed paid personnel for your business, you are entitled to withhold and reduce the amount equal to the state income tax from their payout. Virginia’s rules and laws are in accordance with the federal law system. This means that if, as per the federal laws, you can withhold taxes, then those taxes can be withheld from payment in Virginia as well.

Excise Taxes

These taxes are levied on the sales and use of some special products. An LLC based in the state of Virginia is liable to pay excise tax on the following items:

Apple Excise Tax

Apple excise tax is charged on someone who produces apples to be sold in the market. This tax is charged at the rate of 2.5 cents per tree run bushel. To get more information about this, visit Apple Excise Taxes.

Egg Excise Tax

This tax is imposed on eggs or egg products that are sold or used in the state of Virginia. The egg excise tax is charged at a rate of 5 cents for each case of shelled eggs. One case of eggs contains 30 dozen eggs. To know more about this tax, you can visit- Egg Excise Taxes.

Peanut Excise Tax

Any business dealing with the processing of peanuts is liable to pay the peanut excise tax. A tax of 25 cents is charged for every 100 pounds of peanuts. Visit- Peanut Excise Taxes to get more details.

Classification of Virginia LLC Taxes

An LLC is considered a Pass-through Entity because it allows the income to pass through & become self-employment income. The members of the LLC have to pay Self-employment tax or Self-Employment Taxes on any income they earn through the LLC. The LLC has to pay Franchise Tax on its income. In addition to the Self-employment tax, there are some other requirements that an LLC has to consider, such as:

1. Franchise Tax – Franchise tax applies to or levies upon LLCs, C-corporations, & S-corporations. Sole Proprietorship & Partnerships (directly owned by individuals) are exempted from the Franchise Tax. This tax is to be paid to the office of the Comptroller of Public Accounts.
2. Federal Tax Identification Number – An LLC with employees must obtain a Federal Tax Identification Number. Virginia does not have a separate State Tax Identification number.
3. State Employer Taxes – If an LLC has employees on the payroll, it must pay state employer taxes in Virginia. These taxes are handled through the Virginia Workforce Commission.
4. Franchise Tax Report – In Virginia, the LLCs file a Franchise Tax Report with the Virginia Department of Tax.

Federal Tax Classifications

When LLCs were recognized as one of the types of Business Corporations, the IRS did not create a new tax classification just for the LLC. LLCs were allowed to choose from the current tax classifications.

Choosing a Classification for Your LLC

In terms of owners’ protection against liability, perpetual existence, & savings in Taxation, both LLCs (Limited Liability Companies) & Corporations are very much alike. However, with regard to formalities, Taxation, & capital, LLCs & Corporations differ in Virginia.

Liabilities

Both LLCs and Corporations provide liability protection to their owners. The LLC provides protection against inside liability (towards the employee) & outside liability (towards the creditor). The Corporation usually provides only the inside liability.

Tax Classification Flexibility

For taxation purposes, an LLC has a choice of being treated as a sole proprietorship, Partnership, C-corporation, or S-corporation. A corporation can choose to be treated only as a C or S Corporation.

Taxation

As mentioned earlier, the LLC can choose to be treated as a corporation; the Corporation does not have the option of being treated as an LLC. A Virginia LLC is subject to Franchise tax, Federal Income Tax, Sales & Use Taxes & State Employment Taxes (for LLCs that have employees)

A regular corporation or a C-Corporation is subject to corporate tax, which can be filed through Form 1120 every year. The shareholders have to pay the income tax only when they receive dividends from the Corporation. These dividends are taxed twice at the corporate level (on a corporate form)& at the shareholder level (on shareholder form).

An S-Corporation in an LLC is not subject to corporate taxes. But the shareholders are subjected to Taxation – even if they do not receive any dividends. A member of a Virginia S-corporation has to pay Federal Self-Employment Tax only on his salary; any other profits that he makes through the LLC are not subject to the 15.3% Self-Employment Tax.

Classification of LLC Taxes – At a Glance

Points of Difference	LLC	S- Corporation	C-Corporation	Sole Proprietorship
Taxation	Similar to LLC, no tax is levied on an S-Corporation at the entity level. The members’ income or even the loss is passed through to the members or owners.	There is Double Taxation in C-Corporations, only when the Shareholders earn in the form of dividends.	The C-Corporation is often taxed at the entity level. The Dividends are taxed at the shareholders’ level.	The Sole- proprietorship as an entity is not taxable. The Sole Proprietor pays taxes as an Individual.
Double Taxation	The LLC does not have Double Taxation	There is no Double Taxation in S-Corporation	The Sole proprietorship as an entity is not taxable. The Sole Proprietor pays taxes as an Individual.	No Double Taxation in a sole proprietorship.
Yes, a sole proprietorship is a Pass-through Entity.	The net income of the members or owners is subject to self-employment tax.	The salaries of the shareholder are subject to self-employment tax, but any other profits that the shareholder makes are not subject to the employment tax.	The C-Corporation is subject to self-employment tax.	Self-Employment Tax
Pass-Through Income/Loss	An LLC is often referred to as a Pass-through entity because its income passes through/ passes to its members.	Yes, An S Corporation is a Pass-through Entity.	No, A C-Corporation is not a Pass-through Entity.	Yes, A Sole-proprietorship is a Pass-through Entity.

FAQ

How Do LLCs Pay Taxes in Virginia

First and foremost, it’s important to note that Virginia does not have a specific tax classification for LLCs. Instead, LLCs are typically considered pass-through entities for tax purposes. This means that the profits and losses of the business “pass through” to the owners, who report this income on their individual tax returns.

In Virginia, LLC owners have the option to choose how they want their entity to be taxed. By default, a single-member LLC is treated as a disregarded entity by the IRS, which means that the business is not recognized as a separate entity for tax purposes. Instead, all profits and losses from the business are reported on the owner’s individual tax return.

For multi-member LLCs, the default tax treatment is as a partnership. This means that the LLC itself does not pay taxes on its profits. Instead, the profits are passed through to the individual members, who are then responsible for paying taxes on their share of the income.

LLCs also have the option to elect to be taxed as a corporation in Virginia. This election can be made using IRS Form 8832, and allows the LLC to be treated as a separate entity for tax purposes. This means that the business itself will pay taxes on its profits, either at the corporate tax rate or the personal income tax rate, depending on the type of corporation.

It’s important for LLC owners in Virginia to carefully weigh the pros and cons of each tax treatment option. For many small businesses, the pass-through tax treatment of an LLC is attractive because it allows for the income to be taxed at the individual level, potentially at a lower rate than the corporate tax rate.

However, some LLC owners may find that electing to be taxed as a corporation provides benefits such as lower self-employment tax liability or access to certain corporate tax deductions. Additionally, corporations may have more flexibility in how they allocate profits and losses among owners.

Ultimately, the best tax strategy for an LLC in Virginia will depend on the specific circumstances of the business and its owners. Consulting with a qualified tax professional can help ensure that the chosen tax treatment aligns with the overall financial goals of the business.

In conclusion, understanding how LLCs pay taxes in Virginia is crucial for business owners who want to make informed decisions about their tax strategy. By familiarizing themselves with the different tax treatment options available to LLCs, owners can maximize tax efficiency and ensure compliance with state and federal tax laws.

In Conclusion

Every Tax classification has its own set of benefits & restrictions. Every state will have different taxation rules for each of the categories of business corporations. Depending on the objective of formation of the business entity (Eg, to avoid dual Taxation- one can choose S Corporation, for more flexibility, one can choose the LLC format). It is essential to understand the taxing structure of each country & each Classification to decide how you wish to treat your LLC.