Is filing a tax return compulsory for an LLC with no activity?

A limited liability company can go for some years without a single business activity. For example, you could register your new LLC when you are not yet ready to go operational business-wise. Similarly, it’s possible for an old limited liability company to suddenly become inactive even when it has not yet been officially dissolved.

So the big question is whether or not to file a tax return when the LLC hasn’t had any income or expenses within that year. Well, the truth is you might still be obligated to file a federal income tax return to avoid getting into bigger problems in the long run. You need to know that your LLC’s tax filing requirements are often a function of how the LLC is taxed. This only means that your limited liability company could either be taxed as a partnership or a corporation.

If your limited liability company has just one owner, the IRS will automatically disregard it for federal income tax purposes since the members are expected to report the LLC’s expenses and incomes on their personal tax returns. However, the IRS will automatically treat limited liability companies with more than one member as a partnership, implying that the LLC is expected to file an informal partnership tax return while the members also give a report of the LLC’s expenses and income on their personal tax returns.

Despite these options, a limited liability company can still change all these default classifications and instead opt to be taxed as a corporation. But then the LLC must file a form within the IRS after a successful election where the members voted in favor of changing its tax classification.

Your limited liability company will also be taxed the same way sole proprietors are taxed if it’s not considered a separate entity for federal income tax purposes. In this case, your limited liability company’s expenses and income should be reported as self-employment income on the personal tax returns of its members. This will mean that you will have to file Schedule C if the LLC’s income exceeds $400. On the other hand, if your one-member LLC failed to have any business activities within that year, you won’t need to file Schedule C to report the LLC’s income.

If your LLC is taxed like partnerships, you can be sure that you are also subjected to the same federal income tax return filings required by partnerships. You are therefore expected to file an informational partnership tax return except your LLC didn’t receive any income nor incurred expenses in the last year.