A limited liability company in general does not have to pay any business taxes. When we talk about the classification of LLC taxes in Wyoming, we know that it is a pass-through taxation structure. Typically, the profit LLC makes passes through the LLC to its members. Based on the profit share, members file their income tax returns. LLCs, unlike other corporations, do not have to pay income taxes based on profit or revenue.
IRS (Internal Revenue Service) allows LLCs to choose their preferable classification of tax at the beginning of the LLC formation. In general, 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, anyone certainly wants to opt for the most beneficial one. Keep reading till the end to know more about the tax structure of a Wyoming LLC and related aspects.
On this page, you’ll learn about the following:
- Classification of Wyoming LLC Taxes
- LLC Taxes to be Paid in Wyoming
- Default LLC Tax Classification Rules
- Options to Change Default Tax Classification
- Choosing a Classification for Your LLC
- Classification of LLC Taxes – At a Glance
Classification of Wyoming 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:
- 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 with the office of the Comptroller of Public Accounts.
- Federal Tax Identification Number – An LLC with employees must obtain a Federal Tax Identification Number. Wyoming does not have a separate State Tax Identification number.
- State Employer Taxes – If an LLC has employees on the payroll, it must pay state employer taxes in Wyoming. These taxes are handled through Wyoming Workforce Commission.
- Franchise Tax Report – In Wyoming, the LLCs do not file the Franchise Tax Report. As they do not have to pay any Franchise tax.
Federal Tax Classifications
When LLCs was recognized as one of the types of Business Corporations, IRS did not create a new tax classification just for the LLC. LLCs were allowed to choose from the current tax classifications.
LLC Taxes to be Paid in Wyoming
Based on the Wyoming classification of LLC taxes, the Wyoming Tax commission has assessed the following state taxes on any LLC:
State Income Tax
Wyoming is one of the nine states where Individual income taxes do not exist.
State Sales & Use Tax
You may be required to collect sales tax and pay it to the state’s Department of Revenue if you sell physical goods or certain types of services. Sales tax is collected at the moment of sale and varies by area, county, and city in which your company is located. The rate at which sales tax is charged in the state is 4%. Local and optional taxes can also be imposed if voters agree to them through a referendum.
State Annual License Fee
Wyoming only has an annual license fee because it does not have a personal income tax, a corporate income tax, or any of the other taxes that some states levy on enterprises. This tax is levied on the assets of limited partnerships, limited liability companies, and corporations conducting business in the state.
The license fee in Wyoming is $.0002 for every dollar of in-state assets a company possesses, or $60, whichever is greater.
Federal Self-employment Tax
All LLC members and management must pay self-employment tax on their profits. The federal income taxes are governed by the Federal Insurance Contributions Act (FICA). In Wyoming, the self-employment tax rate is now 15.3 percent. When calculating how much self-employment tax you owe, you’ll be able to deduct part of your business payments from your salary.
Federal Income Tax
Income generated from the LLC is taxable for federal income taxes, just as state income taxes. The amount of income tax you payable is determined by the revenue you make, your filing status, any allowances, and your tax bracket.
The federal income tax only applies to the profits. This means that the tax does not apply to any allowances or deductions, such as tax-free income, company costs, healthcare insurance, and so on.
Employer & Employee Tax
If your business has paid employees, you have the right to withhold and deduct the amount equal to state income tax from their compensation. Nonetheless, you have withheld the taxes of your working personnel, they need to file the tax returns.
Default LLC Tax Classification Rules
By default, the LLCs are categorized as below (In both the categories, separate filing of income is not required):
Disregarded Entity (Single-Member LLC)
A single-member LLC is usually disregarded from the taxes. Hence 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. Single-member LLC’s owner (Sole Proprietor) has to report all the income of the LLC via his own income tax return.
Sole Proprietorship Taxes
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. Wyoming does not levy State Income Tax, so a single-member LLC must file only the Federal Income Tax.
Partnership (Multi-Member LLC)
Any LLC with more than one owner is referred to as 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 the Single Member LLC. If the Partnership LLC is directly owned by individuals, it is exempted from the Franchise Tax. All the members of the Multi-Member LLC are liable to pay Self-Employment Tax & Federal Income Tax.
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:
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.
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 subjected to Federal Income Tax.
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 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.
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 Partnership, in S Corporation, the shareholders are required to pay Federal Self Income tax on their share of the company’s profits.
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 Wyoming.
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 or C-corporation or S-corporation. A corporation can choose to be treated only as C or S Corporation.
As mentioned earlier, the LLC can choose to be treated as a corporation; the Corporation does not have the option of being treated as the LLC. A Wyoming LLC is subjected 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 subjected 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 LLC is not subjected to corporate taxes. But the shareholders are subjected to Taxation – even if they do not receive any dividends. A member of a Wyoming 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||As an LLC, by default, there is no tax levied at the entity level. The members’ income or even the loss is passed through to members or owners.||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 members or owners.||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||There is Double Taxation in C-Corporation, only when the Shareholders earn in the form of dividends.||No Double Taxation in a sole proprietorship.|
|Self Employment Tax||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.||The Sole-proprietorship is subject to 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.|
How Do LLCs Pay Taxes in Wyoming
Any LLC operating in Wyoming is liable to pay 2 kinds of taxes- state taxes as well as federal taxes.
LLCs in Wyoming have the advantage of being able to choose how they want to be taxed. By default, an LLC is considered a “pass-through” entity, meaning that the company’s profits and losses are passed through to the owners’ personal tax returns. This eliminates the need for the LLC itself to file a tax return, making the process simpler and more cost-effective for small business owners. In contrast, traditional corporations are subject to double taxation, with both the company and the shareholders being taxed separately.
The absence of a state income tax in Wyoming is yet another appealing aspect for LLCs. This means that business owners only need to worry about federal tax obligations, without the additional burden of state-level taxation. This can be especially beneficial for startups and small businesses, as it allows for more financial flexibility and a higher potential for growth.
However, LLCs in Wyoming still need to fulfill federal tax obligations. The Internal Revenue Service (IRS) treats LLCs as disregarded entities, partnerships, or corporations for tax purposes, depending on the structure chosen by the business owners. Single-member LLCs are typically treated as sole proprietorships, while multiple-member LLCs default to being treated as partnerships. However, LLCs can also elect to be treated as corporations, allowing for more flexibility in tax planning and potentially reducing overall tax liability.
For single-member LLCs and those treated as partnership, the company’s profits and losses are reported on a Schedule C or Schedule E and filed with the owner’s personal tax return. It is worth noting that although LLCs do not have a separate tax return, they may still need to file other forms and schedules depending on their specific circumstances. Owners of LLCs treated as corporations, on the other hand, will need to file a separate federal corporate tax return.
In addition to federal taxes, LLCs may also be subject to other taxes and fees in Wyoming. These can include unemployment taxes, sales taxes, property taxes, and annual report fees. Nevertheless, compared to some other states, Wyoming offers a favorable tax climate for LLCs, which can help entrepreneurs save money and focus on driving their businesses forward.
In conclusion, understanding the tax implications for LLCs is crucial for entrepreneurs planning to start a business in Wyoming. Thanks to its favorable tax structure, including the absence of state income tax and pass-through taxation, LLCs in Wyoming can enjoy simplicity and financial advantages. However, it is important for LLC owners to consult with tax professionals to ensure they comply with all federal tax obligations and to maximize the benefits available to them. By navigating the tax landscape effectively, business owners can position themselves for success and long-term growth.
C-Corporation. It taxes the dividends of the shareholders at the corporate level as well as at an individual level.
An LLC is often referred to as the pass-through entity because the income or the assets pass through the members or owners of the LLC.
The LLCs have two default classifications. It can be termed as a single-member LLC or a multi-member LLC.
When choosing a different classification for taxation, it is essential to understand the liabilities & taxes applicable in that classification.
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.