Taxes for a New Jersey LLC
Our tax lesson is not as step-by-step as our Forming an LLC in New Jersey lessons, due to the uniqueness and variation among businesses. Taxes are not as straightforward as forming an LLC in New Jersey (things vary by city and vary by industry), and therefore, the information below is an overview, and not a comprehensive guide. Thank you for your understanding.
We recommend speaking with a few accountants in New Jersey to make sure you meet all your federal, state, and local tax obligations. For tips on finding an accountant for your LLC, please see our How to Find an Accountant guide.
Income taxes are reported and paid on 3 levels:
Federal Taxes for your LLC
Federal taxes are filed with the IRS.
Most LLCs in New Jersey with default tax elections are “tax-reporting” entities with the IRS and not “tax-paying” entities. Meaning, the LLC doesn’t file its own tax return with the IRS, but rather the profits and losses flow-through to the owners and the owners are responsible for filing them on their personal income return.
(related article: tax-reporting entity vs tax-paying entity)
By default, the IRS taxes the LLC based on the number of LLC Members (owners).
A New Jersey LLC with 1 Member
is taxed as a Disregarded Entity:
- If the LLC owner is an individual, the LLC is taxed like a Sole Proprietorship
- If the LLC owner is another company, the LLC is taxed like a branch/division of the parent company
In LLC/Sole Proprietorship taxation, the LLC doesn’t file its own federal return, but rather, the LLC owner reports and pays the taxes via their personal income tax return (Form 1040). The profits and losses from the business will likely be reported on a Schedule C. You may also need to include additional Schedules and Forms, depending on how the income is derived.
A New Jersey LLC with 2 or more Members
is taxed as Partnership.
In LLC/Partnership taxation, the LLC is a tax-reporting entity and has to file its own federal information return (Form 1065) and issue K-1s to each Member (reporting their share of the profits). The K-1 is then attached to the owner’s personal income tax return (Form 1040).
The above types of taxation are referred to as the “default” tax elections. You don’t have to do anything to “get them”. When you apply for your EIN, you tell the IRS how many Members your LLC has and that’s how they know what type of tax return to expect.
Keep in mind that your LLC is still a separate legal entity from its owners. Just because the IRS taxes your LLC like a Sole Proprietorship or like a Partnership doesn’t mean your LLC is a Sole Proprietorship or a Partnership. No matter how the IRS taxes your LLC, your personal assets are still protected.
Besides the “default” tax elections, you can request that the IRS tax your LLC like a Corporation instead.
There are two types of corporate taxation for LLCs:
- LLC taxed as C-Corp
- LLC taxed as S-Corp
In LLC/C-Corp taxation,
the LLC is treated like a C-Corporation for federal tax purposes. This is not a very common election though, because an LLC/C-Corp faces double taxation. This election usually only makes sense for large companies that are looking to raise money, go public, or have large healthcare expenses. You can find more information here: LLC taxed as a C-Corp.
If make a federal election with the IRS to have your LLC taxed as a C-Corp, New Jersey will honor that election and tax your LLC the same way.
A New Jersey LLC that is taxed as a C-Corp is also subject to NJ Corporation Business Tax.
In LLC/S-Corp taxation, the LLC is treated like an S-Corporation for federal tax purposes. This is a popular election for saving money on self-employment taxes. It usually makes sense once the LLC’s net income is around $70,000 per year. This is usually not a good idea for businesses that are just starting out and haven’t generated a lot of profit yet. You can find more information here: LLC taxed as an S-Corp.
Most states recognize an LLC’s federal S-Corp tax election, however New Jersey does not and instead, they require you to file a CBT-2553 with the NJ Division of Taxation.
Additionally, there is a minimum tax of $375 due each year for New Jersey LLCs that are taxed as an S-Corp.
New Jersey Corporate tax rates:
You can find information on the minimum tax for both LLCs taxed as C-Corps and LLCs taxed as S-Corps here: https://www.nj.gov/treasury/taxation/corp_over.shtml
State Income Taxes
State income taxes are filed with the New Jersey Division of Taxation, the agency which collects taxes and pays for public services in the state.
You have to register your New Jersey LLC with the Division in order to be able to pay state taxes. If you have not registered your NJ LLC with the Division of Taxation yet, you can find the “registration” instructions here: New Jersey LLC Formation & Registration.
New Jersey imposes a progressive income tax (increased income = increased tax rate).
Additionally, you may also be responsible for the following taxes (you’ll need to check with your accountant):
- Gross Income Tax (GIT)
- Gross Income Tax for Real Property (GIT/REP)
- Sales and Use Tax
- Unemployment Insurance (UI)
- Disability Insurance (DI)
- Family Leave Insurance (FLI)
- Workforce Development (WF)
- Supplemental Workforce Funds (SWF)
Local/municipal taxes are usually filed with the county, city, town, and/or township, but this will vary depending on where you’re doing business.
Since New Jersey has 21 counties and over 565 different municipalities, things will vary widely and you’ll need to work with an accountant in your area to determine what local tax obligations your New Jersey LLC needs to meet.
If your New Jersey LLC sells tangible and retail goods, you’re required to collect sales tax from your buyers. Those collected taxes are then sent to the NJ Division of Taxation (they can be paid online).
Sales tax must be collected for brick-and-mortar stores in New Jersey as well as online sellers who ship to buyers in New Jersey.
Either quarterly or annually, you’ll need to file your sales tax returns. If filing by mail, use Form ST-50 or Form ST-51. If filing online, you can use the Division of Taxation Sales and Use Tax Online Filing system.
Calculating sales tax and meeting your filing deadlines can be a headache for business owners. Your accountant may be able to help, but some accountants don’t handle sales tax.
Need help with sales tax?
You can automate your New Jersey sales tax filings with TaxJar. TaxJar helps online sellers as well as brick-and-mortar businesses in New Jersey.
TaxJar also has helpful guides on state sales tax: Sales Tax Guide for Businesses.
If your New Jersey LLC will have employees, you must submit payroll taxes. Payroll taxes are essentially a bunch of taxes and filings, including:
- Federal income tax withholding
- State income tax withholding
- Social Security tax
- Medicare tax
- Federal unemployment taxes (FUTA)
- State unemployment taxes (SUTA)
- Local/county deductions
- Employee deductions
As an employer in New Jerseyf, you need to set up payroll, withhold payroll taxes from employees’ paychecks, and then submit those filings and taxes to various state and government agencies.
Although you can file payroll taxes yourself, the calculations can be burdensome and very complex. And if done improperly can lead to penalties and fines. Most people hire a payroll company or ask their accountant for help.
Our favorite payroll company is Gusto Payroll. They’ll automate and take care of all your payroll taxes.
LLC Partner Tax
If you have a New Jersey Multi-Member LLC (2 or more owners), along with your NJ-1065 return, you must pay the “LLC Partner Tax”, which is $150 per LLC Member.
This must be paid each year when you file the NJ-1065 Partnership Return.
The LLC Partner Tax is not required for Single-Member LLCs.
You can find more information about the New Jersey LLC Partner Tax here:
• NJ Division of Taxation: Partnership Information
• NJ Division of Taxation: GIT-9P, Income from Partnerships
• NJ Division of Taxation: TB-55R, Partnership Filing Fee
The information above doesn’t cover all types of taxation in New Jersey. You and/or your LLC may be responsible for other taxes.
Some examples are motor fuel tax, cigarette tax, payroll tax, federal unemployment tax, state unemployment tax, workers’ compensation tax/insurance, capital gains tax, state franchise tax, gross receipts tax, dividend tax, sales tax, use tax, excise tax, and more.
New Jersey Division of Taxation
If you have any questions about taxes, you can contact the New Jersey Division of Taxation at 609-292-6400. Their hours are 8:30am to 4:30pm Eastern (Monday, Tuesday, Thursday, and Friday) and 10am to 5:30pm Eastern (on Wednesdays). They often have long hold times, so we recommend calling right after they open.
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