Tennessee LLC Taxes

An Tennessee LLC is taxed at three levels: federal income tax on the profits, Tennessee state rules, and payroll or sales taxes that depend on what the business does. Tennessee has no broad state personal income tax on wages or business income, so owners report profit federally without a separate state income tax layer. Tennessee also has an entity-level tax to plan for: Franchise & Excise tax.

Federal tax treatment

By default the IRS treats a single-member LLC as a disregarded entity, so profit is reported on Schedule C of the owner's personal return. A multi-member LLC is taxed as a partnership and files Form 1065, with each member receiving a Schedule K-1. Either can elect to be taxed as an S corporation (Form 2553) or a C corporation (Form 8832). See the IRS page on LLCs.

Self-employment tax

Members who work in the business generally pay self-employment tax of 15.3% on net earnings: 12.4% for Social Security up to the annual wage base set by the SSA, and 2.9% for Medicare with no cap, plus an additional 0.9% Medicare tax at higher incomes. An S corporation election can reduce this for profitable businesses, but it requires running payroll and paying yourself a reasonable salary. Our LLC vs S-Corp comparison walks through the trade-off.

Tennessee state taxes

Sales tax, payroll tax, and local business taxes sit on top of these. If you sell taxable goods or services, register with the Tennessee tax agency for a sales tax permit. If you hire, you will register for state unemployment insurance and withholding.

Estimated tax payments

LLC owners usually have no employer withholding, so they pay federal estimated tax each quarter. Missing estimates can trigger underpayment penalties, so many owners set aside a percentage of every payment they receive.

Tennessee specific notes

Tennessee LLC formation fee is $50 per member with a $300 minimum / $3,000 maximum. The Franchise & Excise Tax applies to most LLCs (with a SMLLC/disregarded exception in some cases).

Tennessee LLC at a glance

Tax rules and thresholds change, and this page is general information. Confirm details with the Tennessee tax agency and a licensed CPA before you file.