How Your LLC Will Be Taxed
In this part of the guide, we’ll go over all the main business taxes required in Wisconsin, 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 applied as follows:
Owners pay self-employment tax on business profits.
Owners pay state income tax on any profits, minus state allowances or deductions.
Owners pay federal income tax on any profits, minus federal allowances or deductions.
Some LLCs pay Wisconsin sales tax on products.
Employers pay payroll tax on any salaries paid to employees.
Employees pay federal and state income taxes on their earnings.
Items 1, 2 and 3 fall under pass-through taxation for any LLC owners, managers or members who receive profits from the business. Profits are reported on federal and state personal tax returns.
Incfile provides a complete Business Tax Filing service.
State Taxes for LLCs
There are three main types of state tax you’re required to pay to the Wisconsin Department of Revenue: income, sales and franchise.
Wisconsin Income Tax
As a business owner, you’ll need to pay Wisconsin income tax on any money you pay yourself. These earnings flow through to your personal tax return. You’ll be taxed at the standard rates for Wisconsin, and you’ll get to apply regular allowances and deductions.
Any salaried employees will also need to pay Wisconsin state income tax.
Wisconsin income tax rates range between 3.54 percent and 7.65 percent, depending on your earnings.
Wisconsin Sales Tax
If you sell physical products or certain types of services, you may need to collect sales tax and then pay it to the Wisconsin Department of Revenue. Sales tax is collected at the point of purchase and varies depending on the region, county or city where your business is located.
You’ll typically need to collect Wisconsin sales tax on:
- Tangible, personal property and goods you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
- Certain services your business may provide
Most states don’t levy sales tax on goods that are considered necessities, such as food, medications, clothing or gas. Use our sales tax calculator to determine how much you'll need to pay, but also check with your accountant and the Department of Revenue to confirm whether your business is required to collect Wisconsin sales tax and, to ensure you pay the correct amount.
Wisconsin Franchise Tax
Some states levy a tax on certain businesses for the right to exist as a legal entity and do business in the state. This is called a franchise tax in Wisconsin, though some states call it a transaction privilege tax or a privilege tax. Despite its name, this is not a tax on franchises. The Wisconsin franchise tax is an essential part of filing taxes for your LLC.
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 Wisconsin LLC is paying the correct amount.
Federal Self-Employment Tax
All members or managers who take profits out of the LLC must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA), which covers Social Security and 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 determining 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 $50,000, you would pay self-employment tax of $7,650.
- On profits of $100,000, you would pay self-employment tax of $15,300.
- On profits of $140,000, you would pay self-employment tax of $21,420.
- On profits of $160,000, you would pay self-employment tax of $24,480.
Pay Less Self-Employment Tax by Treating Your LLC as an S Corporation
The Internal Revenue Service allows an LLC to be treated as an S Corporation for tax purposes, provided your business meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary and other income as distributions or withdrawals.
You do this by filing Form 2553, also known as an S Corp Election form, with the IRS. Incfile can also file the form for you. Use our S Corp Tax Calculator to get an idea of how much money you could save with this election.
Consult with your accountant or tax advisor for more information on reducing your LLC self-employment tax through an S Corporation tax election.
We can file the paperwork with the IRS on your behalf.
Federal Income Tax
You are also required to pay regular federal income tax on any earnings you take out of your LLC. The amount of income tax you pay 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, you must adhere to other tax requirements. For clear guidance on your situation, speak to your accountant.
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 for Your LLC
Depending on what industry your business operates in, you may be liable for 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 must pay estimated taxes throughout the year, depending on your adjusted gross income, taxable income, taxes, deductions, and credits for the year. The most common types of estimated tax are:
Wisconsin income tax
Federal income tax
Federal self-employment tax
Most LLCs will pay estimated taxes four times a year. Learn more on the IRS website, and speak to your accountant for more information.
FAQs on Wisconsin Business Taxes
Yes. Wisconsin does have a sales tax, which may vary among cities and counties. You can find more information above.
Yes. Wisconsin does have a franchise tax. You can find more information above.
Yes. Wisconsin does have a state income tax. You can find more information above.
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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