Indiana LLC Taxes
Indiana LLCs are taxed as pass-through entities by default, which means that the LLC itself doesn’t pay taxes, its members (owners) do. Profits pass through the LLC and onto the tax filings of the members where they’ll pay federal income tax and self-employment taxes (15.3%) on their LLC income. They’ll also have to pay Indiana’s state income tax of 3.23%. We’ll go over the taxes your LLC can expect to pay in Indiana.
In this article, we’ll cover:
How Are Indiana LLCs Taxed?
The default tax classification for a single-member LLC (SMLLC) in Indiana is a sole proprietorship. A multi-member LLC is taxed as a partnership by default. This means that unless the LLC members elect to be taxed as an S-corp or C-corp, LLC members will file one of these forms:
- Single-member LLC—Form 1040 (usually Schedule C, but some SMLLCs file C-EZ, E, or F)
- Multi-member LLC—Form 1065
Indiana LLCs can the tax flexibility to be be taxed as S- or C-corps. We’ll explain what that means for your LLC taxes.
Indiana LLCs taxed as S-corp
As with regular LLCs, S-corps are taxed as pass-through entities, which means S-corp members will pay taxes on income from the business. However, unlike regular LLCs, S-corps can split the income into a dividend payment and a reasonable salary. The salary portion of member income will pay self-employment taxes, but the dividend portion will not be subject to the 15.3% tax.
LLCs will need to file Form 2553 with the IRS in order to be taxed as as an S-corp. S-corps report their income to the IRS by filing Form 1120-S. There are certain IRS requirements an LLC must meet before they can make the S-corp election. You’ll also want to consult a tax professional to see if it makes sense for your LLC to choose S-corp status.
LLCs taxed as C-corp
Indiana LLCs can also elect to be taxed as C-corps, which is the default tax status for corporations. While not as popular as the S-corp, some LLCs may find that they can benefit from the tax deductions. C-corps are also more appealing to investors. C-corps will file IRS Form 1120 and pay the 21% federal corporate income tax, as well as Indiana’s corporate income tax of 4.9%. Consult a tax professional before you change your LLC’s tax status.
Indiana State Income Tax
LLC and S-corp members will pay Indiana’s individual income tax of 3.23%. Each member will need to file Form IT-40 to report their portion of LLC income to the state. If your LLC has elected to be taxed as a C-corp, each member will need file Form IT-20 to pay their portion of Indiana’s 4.9% corporate income tax.
Sales and Use Tax
Sales and use tax in Indiana is 7%. Your LLC will need to collect this tax and remit it on a quarterly basis to Indiana’s Department of Revenue. To be able to collect this tax you’ll need to register your business with the Secretary of State at InBiz. You can also print out a Business Tax Application (Form BT-1) and file it by mail.
Local Indiana Taxes
Indiana does not allow counties to levy a higher local sales tax on general items. This means means a candy bar in Bloomington will be taxed the same as in Gary. However, there are some counties that do tax certain items. For instance, Marion County levies a 10% admissions tax on gross receipts and a 6% tax on rental vehicles weighing less than 11,000 pounds. You’ll want to contact the county clerk’s office where your LLC does business to find out what kinds of taxes your LLC will be obligated to pay.
Other Taxes in Indiana
You’ll want to be aware of some other taxes that may affect your Indiana LLC.
Indiana State Employer Taxes
If your business has employees, you’ll want to budget for unemployment insurance taxes and workers’ compensation premiums:
- Unemployment Insurance (UI) Tax— As of 2022, Indiana’s unemployment insurance tax rates range from 0.5% to 7.4%. The standard unemployment tax rate for new employers is 2.5%. UI tax rates will rise and fall based on the economic conditions in Indiana.
- Workers’ Compensation— Workers’ compensation insurance covers medical expenses and replaces income for employees who are injured on the job. Rates are based off the type of work the business is engaged in and how many employees are being insured. Indiana law states that workers’ compensation insurance is required for any business that employs even one person, full- or part-time. There are some exemptions, such as railroad employees, LLC members, independent contractors, and a few others.
To learn more about Indiana employer taxes, visit the Indiana Department of Labor website.
Indiana levies taxes on certain industries like cigarettes, alcohol, and even short-term rentals. You’ll want to visit Indiana’s Department of Revenue for a list of taxes your LLC might want to keep an eye on. Here are just a few:
- Aircraft Excise Tax
- Alcoholic Beverage Tax (per gallon)
- Auto Rental Excise Tax
- Charity Gaming Tax
- Cigarette/Other Tobacco Tax
- Controlled Substance Excise Tax
- Estate Tax
- Fireworks Tax
- Gasoline Tax/Gasoline Use Tax
- Innkeeper’s Tax
- Riverboat Wagering Tax
- Special Fuel Tax
- Type II Gaming Tax
Do foreign LLCs in Indiana need to pay Indiana taxes?
Yes. All Indiana foreign LLCs (LLCs originally formed outside of Indiana but registered to do business there) will be expected to pay taxes on any income earned in Indiana. Foreign LLCs will also want to check with the local government office in the jurisdiction where the LLC operates to see if it needs to register for any special local taxes.