How Are LLCs Taxed in Alabama?

Due to their adaptable structure and limited liability protection, Limited Liability Companies (LLCs) are a common corporate structure in Alabama. Because LLCs are pass-through corporations, the company does not have to pay federal or state income taxes. Instead, the LLC’s earnings and losses are disclosed on the owners’ or members’ personal tax filings.

There is no state-level LLC tax in Alabama. However, the Alabama Business Privilege Tax, which is a tax on the right to conduct business in Alabama, is applicable to LLCs. With a minimum tax of $100 and a maximum tax of $15,000, the tax is calculated based on the LLC’s net worth and is charged at a rate of $1.50 for every $1,000 of net value. LLCs are required to pay the Business Privilege Tax on a yearly basis.

In order to assess the share of an LLC’s revenue that is liable to Alabama tax, Alabama additionally considers property. The property factor is determined by dividing the value of the LLC’s assets in Alabama by the value of all of its assets. The portion of the LLC’s income that is liable to Alabama income tax is calculated using this factor.

An Alabama Partnership Return (Form 65) must be filed by every partnership conducting business in Alabama. This applies to LLCs that are subject to partnership taxation. The deadline for filing the return is the 15th day of the fourth month after the end of the taxable year, which for partnerships with calendar year tax years is often the 15th of April. Each LLC member’s Schedule K-1, which details their portion of the company’s gains and losses, must be included with the return.

Finally, the Alabama Secretary of State requires LLCs to renew their registration each year. The LLC’s anniversary date is the deadline for paying the $100 renewal fee. If you don’t renew, the state may administratively dissolve your LLC.

In Alabama, LLCs are treated as pass-through entities for tax purposes, which means that members must declare LLC income and losses on their individual tax returns. The Alabama Business Privilege Tax, which is dependent on the LLC’s net worth, is applicable to LLCs. The percentage of a multi-state LLC’s income that is liable to Alabama tax is determined using the property factor. Alabama Partnership Returns are required for all partnerships, including LLCs that are taxed as partnerships. To avoid being administratively dissolved, LLCs in Alabama must renew their registration with the Secretary of State each year.