What to Know About Michigan Business Taxes for LLCs
You can’t run a business without paying taxes, this is just a fact about running a business. The requirement of paying these taxes to the Michigan and Federal Government must be carried out by your MI LLC
. But, don’t worry we can handle the task of paying all payroll, self-employment and federal taxes as well as Michigan sales and state taxes.
If you are looking for help with managing your taxes, we can help with a complete Business Tax Filing Services out of Michigan.
All About Taxing the Michigan LLC
You will find that the profits of your Michigan LLC are not taxed in the same ways as other corporations. Let’s take a closer look at how Michigan LLC taxes work.
LLC owners in Michigan will be responsible for paying:
1. Self-employment tax on business profits
2. MI state tax on any profits, after subtracting state allowances or deductions
3. Federal income tax on any profits after subtracting federal allowances or deductions
4. Michigan sales tax on products (sometimes)
Employers in Michigan will also pay
1. Tax on any salaries paid to employees
2. Federal, state and tax on their profits
Michigan Taxes Payable to the MI Department of Treasury
There are two types of taxes that your Michigan LLC will be required to pay to the Michigan Department of Treasury. These are the Michigan state sales taxes and income taxes. Here is what you should know.
What to Know About the Michigan State Tax on Your LLC Earnings
As an owner of a business in Michigan, you will be required to pay state tax on the money you will pay to yourself. This refers to the cash that will go directly to your account and be reflected on your personal tax return and will be paid as income tax. The rates of your income tax will be standard according to Michigan taxes and there are specific regulations that provide allowances and deductions.
Any of your salaried employees will also be required to pay these personal state taxes for Michigan.
Rates of Michigan state taxes are around 4.25%.
Michigan Sales Taxes on LLC Sales
The Michigan Department of treasury will also require that you collect taxes on the sale of products and specific services, these are sometimes called sales and use taxes. This type of tax will be collected at the point of purchase. The rates of these taxes will be higher or lower depending on the county or city in which your business is located.
You will be required to collect and pay sales tax in Michigan on:
Tangible items, personal property, as well as goods you are selling like cars, electronics, furniture, books, raw materials, appliances, etc.
Specific services your Michigan service may be providing.
Taxes will not be levied on some items that are considered basic necessities for life including food, clothing, gas and medications. This applies in most states, and Michigan is included,
What to Know About Sales Tax Rates for Your Michigan LLC
The rates of sales taxes will be very different between states, counties and even municipal areas. Most often the base sales tax is set by the state, the counties and municipalities will then alter these as they see fit. Levies may be laid on top of the sales taxes already in place by the state.
Your Michigan LLC Federal Self-Employment and Income Taxes
There are various forms of taxes that an LLC in Michigan will be required to pay. Some of the most important to be aware of include federal income tax and self-employment taxes. These are often categorized as “pass-through” income on your tax forms.
What to Know About Michigan LLC Federal Self-Employment Tax
All members, managers, owners and anyone who will be taking profits from the LLC will be required to pay taxes for self-employment. This is also known as the FICA, Medicare or Social Security taxes. This will apply to any earnings that are sourced from your Michigan LLC. The tax rate for self-employment taxes at this present moment is set at 15.3%
First, you will be allowed to discount your expenses from this income and then the remainder will be used to figure out how much taxes you owe. Here is an example of how this will work, you can see the tax you will pay is linked to the income you are making.
– Pay $4,590 self-employment on profits of $30,000
– Pay $10,710 self-employment tax on profits of $70,000
– Pay $18,360 self-employment tax on profits of $120,000
– Pay $24,480 self-employment tax on profits of $160,000
How to Pay Less Self-Employment Tax
The IRS will allow your LLC to benefit from a special tax bracket by being treated as an S corporation.
This will allow you to minimize the amount you will pay in self-employment taxes by categorizing much of your income as distributions or withdrawals. This is accomplished by making a “S Corporation Tax Election” on form 2553 and submitting your change of corporation with the IRS. If you are not sure how this is done, have no fear. We can handle this affair for you.
The First thing you will want to do is to speak with your accountant and ask about the advantages and disadvantages of reducing your self-employment taxes with an S Corporation Tax Election.
LLC Federal Income Tax
You will also be required to pay federal income tax on all earnings that you are taking out of your LLC. The amount of tax you will be required to pay will depend on the amount of earnings, how you are filing, deductions that apply to you and what income brackets you belong to.
You will only pay this tax on the incomes that you take out of your business, after you have subtracted the allowances and deductions. If you are not sure about the exact amounts, this is a good point to discuss with your accountant.
Taxes on Employer and Employees in Your Michigan LLC
If you run a staff and pay your employees there are some other important tax implications that should be considered. To get a better idea of how this will apply to your situation you should discuss the matter with an accountant.
Employees should collect payroll tax and withhold it from their employees as they provide salaries. Typically, this is around 7.65% of the taxable salary being paid.
Federal and State Tax Withholding
Federal and Michigan state taxes can also be withheld from the salaries being paid out. Speak to your accountant for more information on this important topic.
Employees May Need to File Tax Returns
But, whether you choose to withhold these taxes or not, your employees will be required to file their own tax returns.
Michigan LLC Employee Insurance and Other Requirements
Finally, you may also be required to pay insurance for your employees, this can include unemployment tax and compensation insurance. There are also plenty of other requirements you should be aware of.
Other Taxes and Duties for Your Michigan LLC
Depending on the specifics of your LLC, there may be other tax responsibilities that you should be aware of. You should be sure to speak with your accountant to make sure you are paying and withholding the correct amounts.
FAQs on Michigan LLC Business Taxes
Does Michigan Have Sales Tax?
Michigan does indeed apply a sales tax and it is very different between different states and counties. There is more information on this topic included above.
Does Michigan Have a State Tax?
Yes. Michigan has a state tax, you can find more information about this above.
Do I Need to Pay Estimated Taxes?
In most cases, you will be required to pay estimated taxes for federal income tax, self-employment tax and Michigan tax. Be sure to speak to your accountant if you have further questions.