Alabama LLC Taxes: The Complete Filing Guide (2025)

Alabama LLC Tax Basics

Navigating your Alabama LLC tax obligations doesn’t have to be complicated. We’ll walk you through the essentials of pass-through taxation, explain Alabama’s specific requirements, and highlight strategies to stay compliant and organized. This guide covers everything from federal income taxes to city-specific requirements and filing deadlines.

Use the links below to jump directly to the section you need:

• Alabama LLC Taxes at a Glance
• Understanding LLC Taxation Basics
• Federal Tax Obligations
• Alabama State Taxes
• Local Tax Considerations
• Tax Calendar and Filing Tips
• Tax Strategies for Alabama LLCs
• Forms and Resources

Alabama LLC Taxes at a Glance

Tax Type	Rate	Filing Deadline	Forms Required
Federal Income Tax	10-37% (personal brackets)	April 15, 2025	Form 1040 + Schedule C or Schedule E/K-1
Self-Employment Tax	15.3%	April 15, 2025	Schedule SE
Alabama Personal Income Tax	2%-5%	April 15, 2025	Form 40
Alabama Corporate Income Tax	6.5%	May 15, 2025	Form 20C
Federal Payroll Taxes (If Employees)	7.65% employer + 7.65% employee (FICA)	Quarterly (April 30, July 31, October 31, January 31)	Form 941
Alabama Unemployment Tax (If Employees)	0.59%-6.19%	Quarterly	Form SR2
Federal Unemployment Tax (FUTA)	6% on first $7,000 per employee (0.6% after credits)	January 31, 2026 (annual)	Form 940
State/Local Sales & Use Tax	1.5%-10% (state & local combined, varies by industry)	Monthly	Must file via My Alabama Taxes (MAT)
Alabama Business Privilege Tax & Annual Report	Minimum $50	April 15, 2025	Form CPT (C Corps)/Form PPT (pass-through entities)

Understanding LLC Taxation Basics

How Alabama LLCs Are Taxed By Default

Your Alabama LLC doesn’t pay taxes itself. Instead, profits flow through to you and your members who report them on their personal tax returns. This is called pass-through taxation.

Here’s how it works:

1. Your LLC earns income from business activities
2. The LLC itself files no tax return (unless you elect otherwise)
3. Profits “pass through” to members based on ownership percentage
4. Each member reports their share on their personal tax return
5. Members pay tax at their individual income tax rates

What this means for you: Unlike corporations, your business profits are only taxed once — which typically saves money.

Tax Classification Options

While pass-through taxation is the default, your Alabama LLC can choose alternative tax treatments:

Default LLC Tax Status:

• Single-member LLC: Taxed as a sole proprietorship
• Multi-member LLC: Taxed as a partnership

Optional Tax Classifications:

• S Corporation (S Corp): This can help reduce self-employment taxes by paying “reasonable salaries” to your business’s owners
• C Corporation (C Corp): With this option, the LLC pays corporate tax on profits while members pay personal tax on their distributions (creating “double taxation”)

Not sure which tax classification is right for your business? Schedule a free consultation with 1-800Accountant.

Federal Tax Obligations

Income Tax

As a Alabama LLC owner, you’ll report your share of business profits on your personal tax return using:

• Form 1040 + Schedule C (single-member LLCs)
• Form 1040 + Schedule E + Schedule K-1 (multi-member LLCs)

Federal income tax rates range from 10% to 37% based on your tax bracket (actual brackets will depend on inflation adjustments and any tax law changes).

Simply Put: Whatever money your business makes (after expenses) gets added to your personal tax return — just like income from a job.

Self-Employment Tax

LLC members actively involved in the business must pay self-employment tax of 15.3% (covering Social Security and Medicare) on their share of LLC profits.

Key points:

• Applies to net earnings of $400 or more
• Calculated on Schedule SE
• You can deduct 50% of the self-employment tax as an “above-the-line” deduction, which lowers your adjusted gross income

What happens if I miss this payment? The Internal Revenue Service (IRS) charges penalties of 0.5% per month plus interest. However, first-time mistakes can often qualify for penalty abatement if you have a clean compliance history.

Employment Taxes

If your LLC has employees, you must:

• Withhold federal income tax
• Pay and withhold FICA taxes (7.65% each for employer and employee)
• Pay federal unemployment tax (FUTA)
• File quarterly employment tax returns (Form 941)
• Provide W-2 forms annually

Estimated completion time: 2-3 hours per quarter (significantly less with payroll software or professional help)

Estimated Tax Payments

Because no tax is withheld from your LLC profits, you’ll likely need to make quarterly estimated tax payments using Form 1040-ES. These payments cover both income and self-employment taxes on your share of the business income. Missing deadlines or underpaying can lead to IRS penalties — even if you pay in full later.

Working with an accountant can help ensure accurate calculations, on-time payments, and a smarter overall tax strategy.

Key deadlines:

• April 15
• June 16
• September 15
• January 15

Pro Tip: Set calendar reminders 15 days before each deadline. This gives you time to prepare without the last-minute rush that leads to mistakes.

Alabama State Taxes

Alabama Personal Income Tax

Alabama has a personal income tax rate of 2%-5% that applies to your LLC’s profits on your personal return. This is determined by the amount of taxable income and whether it’s a single person, a head of family, or a married person filing. 

Example (single filers with adjusted gross income of $4,000 or more): 

• 2% on the first $500 of taxable income
• 4% on taxable income between $500 and $3,000
• 5% on taxable income over $3,000

Filing requirements:

• Determine your tax rate based on your adjusted gross income 
• Use Alabama Form 40
• Due April 15, 2025

Alabama Corporate Income Tax 

LLCs organized as corporations for federal income tax purposes must pay Alabama’s flat 6.5% corporate income tax on annual net income. 

Filing Requirements: 

• File Form 20C
• Due May 15, 2025

Sales and Use Tax

If your Alabama LLC sells physical products or certain services:

• Collect 1.5%-4% sales tax on taxable sales (4% for general sales) 
• Register for a sales tax license through the Alabama Department of Revenue
• File and pay collected taxes monthly (you can request quarterly or biannual filing if you have low sales volume) 

60-Second Check: Do I Need to Collect Sales Tax?

• Do you sell physical products in Alabama? → If yes, collect tax
• Do you sell digital products? → If yes, collect tax
• Do you sell online to Alabama customers? → If yes, collect tax

Sales and Use Tax exemptions:

• Prescription drugs 
• Pollution control equipment
• Raw materials 

Products typically subject to sales tax include:

• Tangible personal property
• Food and groceries 
• Automobiles 

Business Privilege Tax

All Alabama businesses are required to pay an annual business privilege tax (BPT). The minimum tax is $50 and the maximum is $15,000 for most businesses. The exact rate is calculated based on your business’s taxable income as follows:

• Less than $1 → $0.25 per $1,000 of taxable income
• Between $1-$200,000 → $1 per $1,000
• Between $200,000-$499,999 → $1.25 per $1,000
• Between $500,000-$2,499,999 → $1.50 per $1,000
• $2.5 million or more → $1.75 per $1,000

Filing Requirements: 

• If you haven’t already, file your Initial Business Privilege Tax Return (must be filed within 2.5 months of formation)
• Determine your tax owed 
• Complete Form CPT (C corps) or Form PPT (pass-through entities)
• File your Alabama Privilege Tax Return alongside your LLC’s annual report ($10 filing fee) 
• Due April 15th, 2025

Payroll Taxes 

If you have employees in Alabama, you’ll be responsible for two types of payroll taxes. 

Unemployment Compensation Tax 

• Register with the Alabama Department of Labor using Form SR2
• Rate is between 0.59%-6.19% based on each employee’s experience. 
• Due online quarterly 

Withholding Tax 

• Register through the My Alabama Taxes (MAT) portal 
• Rate is between 2%-5%, depending on the amount of an employee’s taxable income 
• Due monthly, quarterly, or annually (frequency determined by amounts due)

Local Tax Considerations

Local Sales and Use Taxes 

Alabama allows cities to impose local sales and use taxes in addition to state sales and use taxes. These vary by city, county, and industry. 

Common local sales taxes imposed:

• Lodging Tax
• Consumers Use Tax
• Rental Tax
• Sellers Use Tax

Filing requirements:

• Determine the applicable sales and use tax rates in your city/county
• File monthly using the My Alabama Taxes (MAT) portal 

Severance Taxes

If your LLC extracts natural resources (e.g., oil, gas, or minerals) within the state, you may be responsible for local severance taxes. These are paid through the MAT portal and include:

• Coosa County: $0.25 per ton on specific materials (e.g., sand, clay, silt, loam, dirt, gravel, rock, sand-gravel, and sand-clay)
• Jackson County: $0.20 per ton of coal severed (coal producers only) 
• Marshall County: $0.20 per ton of coal severed (coal producers only) 

Tax Calendar and Filing Tips

Key Deadlines for Alabama LLCs

January:

• January 15: Final estimated tax payment for previous year due

• January 31: Issue Forms W-2/Forms 1099 to employees/contractors
• January 31: Fourth quarter payroll tax payment due (state and federal)

March:

• March 15: Partnership/S corp/LLC tax returns due

April:

• April 15: Personal tax returns due
• April 15: Business privilege tax and annual report due 
• April 15: Federal income tax and self-employment returns due
• April 15: First quarter estimated tax payment due 
• April 30: First quarter payroll tax payment due (state and federal) 

May: 

• May 15: Corporate income tax returns due (C corps only)

June: 

• June 16: Second quarter estimated tax due 

July: 

• July 31: Second quarter payroll tax payment due (state and federal)

September:

• September 15:  Third quarter estimated tax payment due

October:

• October 31: Third quarter payroll tax payment due (state and federal)

Record-Keeping Checklist

Keep these records for at least seven years:

• Business income records (e.g., invoices and receipts)
• Expense receipts and documentation
• Bank and credit card statements
• Asset purchase and improvement records
• Vehicle mileage logs
• Home office documentation
• Payroll records
• Previous tax returns

Tax Strategies for Alabama LLCs

S Corporation Election Benefits

Converting your LLC to an S corp for tax purposes can save you money on self-employment taxes. To do this, you must:

1. File Form 2553 with the IRS
2. Pay yourself a “reasonable salary” subject to employment taxes
3. Take any remaining profits as distributions exempt from self-employment tax

Example: An LLC making $100,000 in profit pays 15.3% self-employment tax on the entire amount. As an S corp, if $60,000 is a reasonable salary and $40,000 is taken as distributions, only the $60,000 is subject to employment taxes.

Potential Savings: In this example, you’d save about $6,120 in self-employment taxes.

Business Expense Deductions

Common deductions Alabama LLC owners often overlook:

• Home office deductions
• Business mileage (70¢ per mile for 2025)
• Health insurance premiums
• Retirement plan contributions
• Professional development expenses
• Business meals (50% deductible)

Forms and Resources

Federal Tax Forms

• Schedule C: Profit or Loss From Business (sole proprietors)
• Form 1065: U.S. Return of Partnership Income
• Schedule K-1: Partner’s Share of Income, Deductions, Credits
• Form 1120-S: U.S. Income Tax Return for an S Corporation
• Form 2553: Election by a Small Business Corporation (S Corp)
• Form 8832: Entity Classification Election

Alabama Tax Forms

• Form 40: Alabama Individual Income Tax Return
• Form 20C: Alabama Corporation Income Tax Return
• Form PPT: Alabama Business Privilege Tax Return (Pass-Through Entities) 
• Form CPT: Alabama Business Privilege Tax Return (C corps) 

Helpful Resources

• Alabama Department of Revenue
• My Alabama Taxes (MAT) Portal
• Internal Revenue Service