North Carolina LLC Taxes

How Is an LLC Taxed in North Carolina?

Taxation in North Carolina isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default (i.e., where all revenue “passes through” directly to the LLC’s members), they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA tax on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in North Carolina to help you ensure your LLC navigates them effectively.

North Carolina Local Taxes

North Carolina has a variety of taxes at the local level, which can vary depending on your specific municipality. 

Below we have listed the most common ones.

Local Sales and Use Tax

North Carolina’s local sales and use tax is not imposed statewide but rather is authorized at the county level for the counties that choose to implement it. This is a variable tax rate ranging from 0% to 2.25% for most counties, except for Durham, Forsyth, Guilford, Mecklenburg, Orange, and Wake counties, which have a higher rate of 2.75% due to the transit tax.

The transit tax, which is 0.50%, refers to a specific portion of the sales and use tax that is designated for funding public transportation projects. For example, Durham has a total sales and use tax rate of 7.5% (4.75% state rate + 2.25% county rate + 0.50% transit rate).

Furthermore, certain items like utility, liquor, and gas are subject to a 7% combined general tax rate. This rate is a combination of the state rate and the 2.25% local rate. The tax only applies to these specific items, regardless of the county or municipality where the transaction takes place.

Note: You can find the specific rates for each county on the NCDOR website to determine the amount of tax you need to collect and remit.

Property Taxes

In North Carolina, the property tax is a locally assessed tax that is collected by the counties and applies to both real property (land and buildings) and personal property (vehicles, boats, machinery, etc.).

Your property tax is based on the assessed value of the property, which is determined by the county assessor. To calculate your property tax, you need to multiply your property’s assessed value by the tax rate. The tax rate is set by the local governments (cities, counties, and special districts) and varies by location and type of service you provide.

If your LLC obtains any tangible personal property, you must file a business personal property listing form with the county assessor on or before January 31 of each year. 

Note: To find more information about filing property taxes in North Carolina, check out the various Property Tax Forms that may apply to your business.

North Carolina State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in North Carolina. 

General Sales and Use Tax

North Carolina’s general 4.75% sales and use tax is imposed on the sale, lease, rental, or use of tangible personal property and certain digital property in the state. Some items, such as sales of certain food, clothing, and prescription drugs, are exempt from this sales tax. 

Your LLC must collect and remit this tax to the North Carolina Department of Revenue according to your filing frequency and due date. 

Note: The items subject only to the general state rate (where local rates do not apply) include the sale of manufactured and modular homes and aircraft and qualified jet engines.

Individual Income Tax

Currently, North Carolina levies a uniform tax rate of 4.75% on an individual’s taxable income. This rate changes annually, with a 2024 rate of 4.5%, a 2025 rate of 4.25%, and a 3.99% rate for 2025 and beyond.

You must file and pay your individual income tax with the North Carolina Secretary of State on or before April 15, depending on when the day falls. Returns received after this date must file an additional 5% net tax for each month the filing is late.

Note: You can use the individual income tax estimator provided by the North Carolina Department of Revenue, which includes a downloadable worksheet and instructions for the estimator. 

Corporate Income Tax

In North Carolina, if an LLC is treated as a C corporation for federal tax purposes, it pays corporate income tax at the state level. 

The tax rate is currently 2.5% for tax years 2019 through 2022; however, the state plans to phase out the corporate income tax over five years, starting from 2025. 

According to the legislation, the tax rate will be reduced to:

• 2.25% for tax years beginning in 2025
• 2% for tax years beginning in 2026
• 1% for tax years beginning in 2028
• 0% for tax years beginning after 2029

Franchise Tax 

North Carolina’s franchise tax is levied on some types of business entities for the privilege of doing business in the state. It is not based on income, but on the net worth of the business. 

If your LLC is taxed as a partnership or sole proprietorship, you will not have to file a franchise tax. However, if your LLC is taxed as a C corporation, your franchise tax will be $1.50 per $1,000 of your corporation’s tax base, with a minimum of $200 and a maximum of $150,000 for holding companies. 

The franchise tax is due annually and must be filed with the North Carolina Department of Revenue along with the corporate income tax return. The due date is the 15th day of the fourth month following the end of the LLC’s tax year. For example, if your LLC’s tax year ends on December 31, the franchise tax is due by April 15 of the following year.

Privilege License Tax

In North Carolina, the privilege license tax is a state-imposed tax that applies to certain businesses and professions that are required to obtain a license from the state.

It’s important to note that the privilege license tax is an annual tax and not prorated. Instead, the full amount of the license tax is due when you engage in a business activity that requires a license at any point during the fiscal year, which runs from July 1 to June 30 of the following year. 

The privilege license tax varies depending on the type of your business or profession. Some of the categories of privilege license tax include:

• Attorneys-at-law and other professionals
• Installment paper dealers
• Loan agencies or brokers, including pawnbrokers and check cashers
• Banks
• Publishers of newsprint publications

Note: Since there is no online method to file, pay, or renew the privilege license with the North Carolina Department of Revenue, you must use the forms and instructions for each category that are available for download.

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employer Taxes

If your LLC hires any employees, it will need to pay employer taxes on the employees’ behalf by withholding a portion of their salaries. These taxes include Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in North Carolina

Below, we’ve outlined the general process an LLC in North Carolina will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you’ve gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it’s a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State Tax Returns: The NCDOR offers several eFile options (such as eServices and eBusiness Center) for individuals and businesses to file and pay their taxes electronically. You can also download or order paper forms from the NCDOR website. 
• Local Tax Returns: If you need to file property taxes, please contact your county assessor for filing instructions. For filing other local taxes, you can refer to NCDOR’s various eFile services.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your North Carolina LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant.

North Carolina LLC Annual Report

North Carolina requires LLCs to file an annual report with the Secretary of State, due by April 15 of each year. The purpose of your annual report is to keep the state updated on your LLC’s contact information and activities, as well as help the state collect taxes from your LLC. 

You can file your annual report online or by mail along with a filing fee of $200. To file online, you need to search for your business entity name, click on the monitor icon, and follow the instructions. To file by mail, you need to print out a pre-populated annual report, fill in the blank fields, sign and date it, and mail it to the address provided.

The penalty for late filing is $200 plus interest. If you do not file your annual report within 60 days of the due date, your LLC may lose its good standing and be dissolved by the state.

Licensure and Tax Requirements

In North Carolina, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: If your LLC sells tangible personal property, provides taxable services, or makes marketplace-facilitated sales in North Carolina, you must register online or by mail with the Department of Revenue to obtain a Certificate of Registration.
• Professional Licenses: If your LLC engages in rendering professional services that are subject to licensing by an occupational board, you must register with the Secretary of State as well as obtain regulatory, state-issued, and occupational licenses and permits. 
• Environmental Permits: If your LLC conducts any activity that may affect the quality of the environment, such as air emissions, water discharges, waste disposal, or land disturbance, you may need to obtain one or more environmental permits from the North Carolina Department of Environmental Quality (DEQ). 

Note: To find out what licenses and permits are required for your specific business activity and location, please refer to the North Carolina Secretary of State’s Licenses and Permits section.