Are LLCs in Florida tax exempt?

One of the advantages of owning an LLC in Florida is that the business is shielded from paying state income tax unless the LLC is incorporated. An LLC can be set up as a single-member LLC (sole proprietorship) or a multi-member LLC (partnership). An LLC classified as a disregarded entity meaning the LLC has not officially filed for a different tax status, it is not classified as a corporation under Florida regulations and therefore does not pay state income tax in Florida. 

An LLC with a single member (owner) is taxed as a sole proprietorship and the income and expenses are reported on the owner’s personal income tax return. The owner is therefore not taxed on their personal income moving through the business to himself. Suggested resource: Set up an LLC in Florida once you are sure that it is the best state for this purpose.

In the case of a partnership or multi-member LLC, all income from the business is paid to the partners of the business who will then pay federal income tax on the money at the regular income tax rates. The income and expenses will be reported on the partners personal income tax returns via Form 1065. A partnership is not required to pay state income tax in Florida.

However, an LLC that has elected to be taxed as a C corporation under federal taxation will also be treated as a corporation under Florida tax regulations. This business will have to file corporate income tax returns each year. Members of the business are then considered employees and the LLC will be liable for state income taxes as per the state tax code. The rate is generally at 5.5% or the minimum of 3.3% of the taxable income. Other taxes such as employer taxes and more specifically unemployment insurance (UI) taxes will also have to be paid.

When starting or running an LLC in the state of Florida, one will have to prepare and submit various documents to the state. An ongoing annual report must be filed yearly with regards to the LLC. When it comes to income tax, most LLCs are seen as pass-through entities which means that the income passes through the LLC to its members. This means that the LLC itself does not pay income taxes, but the members of the entity do. In the state of Florida an LLC is not liable to pay tax for the privilege of doing business as is required in some other states.

LLCs who sell goods to consumers in Florida will be liable for sales taxation. Registration is done via the Department of Revenue and subsequent sales tax payments will have to be made on goods sold. Once registered, you will receive a Certificate of Registration (Form DR-11) and various other documents.

Entities that do not need to register

Certain organizations such as non-profit entities recognized under the 503(c) Internal Revenue code are tax exempt and do not need to register for tax exemption status if it meets the criteria. Organizations who fall within this category are religious, educational, charitable, science and many other organizations. However, the organization will still be liable for Florida income tax if the organization derives any income from activities that are unrelated to the organization or it’s mission. The organizations then needs to submit the F-1120 form in instances where:

1.The organization or business has income that is unrelated to the business trade or any other taxable income.

2.The business is filling Form 990T (reporting unrelated business income) with the Internal Revenue Service.

As an example, a religious institution with its own established place of worship and that holds a Florida Consumer’s Certificate of Exemption will be exempt of the following:

1.Leasing or purchasing of property for the purpose of carrying out its non-profit activities or the leasing of facilities directly to a qualified religious institution.

2.The leasing or the sale of items by a qualified religious organization.

It can be a great advantage to start an LLC in the state of Florida, however it is important to speak with someone knowledgeable about the workings of LLC’s. As with any legal entity, LLC’s have its advantages and disadvantages and it is important to establish if this is the right path for your business.