LLCs and Taxation in Hawaii: What You Need to Know

In Hawaii, Limited Liability Companies (LLCs) are a common alternative for business structures. The flexibility it provides in terms of taxation is one of the factors contributing to its popularity. The income or losses of LLCs are passed through to the owners, who report them on their personal tax returns rather than being taxed separately as a separate entity. Based on their income, LLCs in Hawaii are subject to both state and federal taxation.

In Hawaii, may one individual hold an LLC? A single person may legally own an LLC in Hawaii. This is referred to as a single-member LLC and is handled similarly to a multi-member LLC in terms of taxes. However, it’s crucial to remember that if an LLC just has one member, the liability protection it provides could be restricted.

In Hawaii, how are LLCs taxed? Hawaii’s general excise tax (GET), a tax on commercial activities, is levied against LLCs. For most firms, the GET rate is 4%, however some operations, such wholesaling, are taxed at a lower rate of 0.5%. Hawaii LLCs are liable to federal income tax in addition to the GET. The maximum tax rate for LLCs is 37% and is based on their taxable income.

What does Hawaii’s self-employment tax entail? Income from self-employment, including income from owning an LLC, is subject to self-employment tax. The self-employment tax rate in Hawaii is 15.3%, which includes 2.9% for Medicare and 12.4% for Social Security. The Social Security element of the tax, however, is only levied in 2021 on the first $142,800 of income. Social Security tax is not applied to income over that amount, although Medicare tax is still charged.

In Hawaii, who is subject to general excise tax? Hawaii law mandates that LLCs and other enterprises pay the general excise tax on any commercial activities, including sales of products or services. But other things—like food and medical services—are excluded from the tax. The GET does not apply to nonprofit organizations, but they can be liable to other taxes.

To sum up, LLCs in Hawaii are chargeable to both state and federal taxes, such as the self-employment tax and general excise tax. Hawaii permits one-member LLCs, however owners should be mindful that their liability protection may be limited. To ensure compliance and reduce tax burden, LLC owners should be aware of their tax responsibilities and seek advice from a tax expert.