Montana LLC Taxes
By default, LLCs in Montana are taxed as pass-through entities. Montana LLCs must pay the 15.3% federal self-employment tax (12.4% for social security and 2.9% for Medicare), state income tax, employer-specific taxes, local taxes, and industry taxes. We’ll go through what you need to know about all your Montana LLC taxes.
In this article, we'll cover:
How Are Montana LLCs Taxed?
LLCs in Montana are taxed as pass-through entities which means the business’ profits and losses are recorded on the personal tax returns of the owners (also called members). A single-member LLC (SMLLC) is taxed as a sole proprietorship by default, whereas a multi-member LLC is taxed as a partnership by default. Federally, you would file:
- Single-member LLC—Form 1040 (usually Schedule C, but some SMLLCsfile C-EZ, E, or F)
- Multi-member LLC—Form 1065
For your Montana state tax returns, you can note your LLC’s revenue on your personal tax return.Multi-member LLCs whose owners are not Montana residents can also elect to file a composite tax return, which would allow the LLC to pay taxes on behalf of its members. To qualify, the LLC member must:
- be non-residents, foreign or domestic corporations, or tax-exempt entities
- have no other source of income in Montana
- provide the entity with a written power of attorney so the LLC can file and act on the member’s behalf
Montana LLCs taxed as S-corp
LLCs taxed as an S-corp are considered pass-through entities, just like LLCs with default filing status. However, S-corp LLCs can make distributions to their members that are not subject to the 15.3% self-employment tax.
To file as an S-corp, first confirm that you meet the IRS requirements for S-corps. Then, you can check with your attorney to confirm that changing your default filing status is a good idea for your LLC and file Form 2553 with the IRS.
Federally, S-corps file Form 1120-S.
LLCs taxed as C-corp
C-corp is the default tax filing status for corporations. Any business with C-corp filing status must pay taxes twice: first, through corporate income tax on the business, then a second time through the income on the owner’s personal tax returns. So why would an LLC elect to file as an C-corp?
C-corps often appeal to investors more so than other filing statuses and are eligible for greater tax deductions. If this is something that you (and your CPA) think would benefit your business, you can elect to have your LLC’s default filing status change to C-corp. Then, you’ll pay the the 21% federal corporate income tax and the applicable Montana corporate income tax, which ranges from 0% to 9.4%.
Federally, C-corp LLCs file Form 1120.
Montana State Income Tax
Montana’s state income tax rate depends on your taxable income. The range is between 1% (for income between $0-$360) and 6.75% (for income over $21,600).
If your LLC has elected to be taxed as a C-corp, you must pay corporate income tax as well. The standard rate for this is 6.75%.
Sales and Use Tax
Montana has no general state sales and use tax. Montana also levies no local sales and use tax.
Local Montana Taxes
Local Montana taxes depend on your city and county. For example, some cities levy additional taxes on the sale of alcohol, marijuana, and tobacco. Make sure to check with your local jurisdiction before starting your LLC.
Other Taxes in Montana
Here are some other taxes that are imposed by the state of Montana.
Montana State Employer Taxes
If you are an employer, you will need to pay unemployment insurance and workers’ compensation taxes:
- Unemployment Insurance (UI) Tax—In Montana, your LLC must pay UI tax if your annual payroll reaches $1,000/year, you acquire a business already subject to UI, or you are a domestic employer who pays at least $1,000 in wages per quarter. For-profit LLCs have a tax range of 0% to 6.2% on average. Learn more about Montana UI tax.
- Workers’ Compensation—Most businesses with employees are required to have workers’ compensation in the state of Montana. A few exceptions include domestic workers, dependents/spouses of the members, and freelance contractors. (Read the full list of exceptions on MT Code § 39-71-401 (2021).) Rates depend on your business’ industry, the size of your company, and other factors, but generally, Montana workers’ compensation rates average $1.77 per $100 in covered payroll.
The Montana Department of Revenue levies taxes on certain industries, such as alcohol taxes, tobacco taxes, and fuel taxes.
Make sure to check with the Montana DOR about your specific industry to see if there are taxes levied against your business.
Do foreign LLCs in Montana need to pay Montana taxes?
A Montana foreign LLC is an LLC that was originally formed in a different state and now conducts business in Montana. All foreign LLCs must be registered with the Secretary of State and pay all applicable Montana business taxes. Check with your business’ local municipality to determine what your foreign LLC’s business taxes will be.