Illinois has a franchise tax. But it doesn’t apply to Limited Liability Companies (LLCs). It applies to corporations. Illinois LLCs owe an annual report fee of $75, but that’s not the same. It’s certainly confusing to know what fees you must pay. To help you, we’ll break down what LLCs and corporations owe in Illinois and how to stay compliant.
Does Illinois have an LLC franchise tax?
No. Illinois LLCs are not subject to franchise tax. As an LLC operating in Illinois, you will need to pay an annual report filing fee. That’s the most common annual financial obligation for LLCs.
Corporations, which are a different business identity, are subject to franchise taxes. That applies to both domestic and foreign companies operating as a corporation in the state.
Unless you formally convert your business to a corporation, the Illinois franchise tax does not apply to your LLC. If you own a corporation, not an LLC, then you may be subject to this fee.
What Illinois LLCs do owe: the annual report
In Illinois, you must complete an LLC annual report. It’s an annual, mandatory filing that updates the state on core business details. The Illinois Secretary of State requires you to complete this filing every year, even if details don’t change.
You’ll use Form LLC-50.1 for this process. It includes basic business information, including the official address, your Illinois registered agent, and ownership of your company. It provides the state with current member/manager details. You’ll also need to submit the filing fee, which is $75.
It’s due based on the anniversary of your business. You’ll need to file it before the first day of the LLC’s anniversary month each year. For example, if you formed your LLC on June 15th, your LLC annual report is due to the Secretary of State by May 31st each year.
For more information, check out our Illinois LLC annual report article.
What happens if you miss the Illinois LLC annual report deadline?
If you fail to provide the LLC annual report by the required date, you face penalties. A $100 fee is charged for late filing. You’ll receive a notice of non-compliance within a few weeks of missing the deadline. This typically means you have 60 days to file or face administrative dissolution of your LLC within the state. You don’t want this to happen, as it impacts your ability to operate your business.
If the state dissolves the IL LLC, reinstatement after dissolution incurs a $200 fee in addition to all other outstanding fees owed. Its important to know and understand Illinois LLC cost factors when forming an Illinois LLC.
What about Illinois corporations and the franchise tax?
A corporation has a different set of requirements for maintaining operation in the Prairie State. Both domestic corporations, those just in the US, and foreign corporations, led outside of the United States, are subject to the Illinois franchise tax. Corporations must submit the applicable franchise tax along with the annual report within the anniversary month.
The calculation for franchise tax is paid-in capital apportioned to Illinois. That means it’s not a simple flat fee but is based on a formula. It’s not based on revenue directly either. Illinois measures the part of your business that is operating in the state by dividing your gross in-state business plus property by your gross everywhere business plus property. This produces your allocation factor.
To determine your Illinois capital, you’ll multiply all of your total Paid-In Capital by the allocation factor. To calculate the tax owed, multiply the Illinois capital by 0.001.
Keep in mind that this is a calculation that’s genuinely complex and requires careful calculation with accurate records. It involves:
- Paid-in capital
- Allocation factors
- Additional Form BCA 14.30 in some cases
These calculations are best handled by your tax accountant to ensure accuracy. Always check with your accountant when completing corporate taxes, including Illinois franchise taxes and fees.
Note the franchise tax exemption
For many businesses, their actual tax liability is zero. That’s because state law provides a $10,000 franchise tax exemption for annual reports. If your calculated tax liability is $10,000 or less, there is no franchise tax levied on your business. However, you must still file the annual report and the applicable fees for doing so ($75).
Note that these details are meant for LLC owners who want information about franchise tax, but not to be used as official tax guidance or calculation processes. Work with a tax accountant to handle those calculations.
Common mistakes Illinois business owners make
It’s not hard to become confused about what your responsibilities are. And many LLCs make critical and avoidable mistakes. Some of the most common mistakes LLC owners make in this area include:
- Thinking they owe a franchise tax. LLCs do not pay franchise taxes in Illinois. That’s only paid by corporations.
- Missing the deadline. The anniversary-based deadline is confusing, and it’s easy to overlook it. It’s not a specific date on the calendar that applies to all businesses. Rather, it’s based on your company’s opening date.
- First-year exemption. Many LLCs believe they must file the annual report the first year of operation. That’s not the case. You’ll file this in the second year of operation in the month leading up to the anniversary of the business.
- Trying to calculate the franchise tax. If you own a corporation, attempting to calculate the franchise tax is simply a mistake. Turn to a professional for guidance on the process.
If you’re unsure of where you stand when it comes to the Illinois annual report, reach out for help. Don’t avoid this process, as it can lead to costly fines and, in some cases, the dissolution of your business.
How this fits into your broader LLC compliance
LLCs must meet various rules and regulations to operate in the state of Illinois. The annual report is just one component of the process. As you work to ensure your business is compliant and build a strong foundation for success, consider the following additional aspects of LLC compliance:
- Annual report: File this report with updated business information prior to the anniversary of your business origination with the state. Pay the $75 fee to do so.
- Registered agent: You must assign an Illinois registered agent for your business that has a physical office that is open during normal business hours to accept legal notice. You must have a physical street address in the state. The registered agent must be an individual Illinois resident who is 18 years of age or older or a business entity you’ve authorized to represent you as a registered agent.
- EIN: An employer identification number (EIN) is the way the IRS recognizes your business. Obtaining an EIN is necessary to file taxes for your LLC. There’s no cost to obtaining one.
- Clean bookkeeping: You’ll also need to maintain accurate records. This includes keeping business expenses and revenue separate from personal funds and tracking business transactions in a general ledger, balance sheets, and with profit-and-loss statements. You also should maintain all records of invoices, bank statements, and receipts.
- Complete taxes: All LLCs must file annual income taxes with the state and federal government as applicable. Work with a tax accountant for this process.
Tailor Brands can help you with many of these tasks. That includes LLC formation to get your business properly registered with the state. Tailor Brands also offers help with securing an EIN, registered agent, and meeting other compliance requirements.
Understanding your Illinois LLC requirements
Illinois LLCs must file an annual report that updates the Secretary of State with accurate business information. This is a simple process with a predictable annual obligation of $75. File it on the anniversary of establishing your business. Illinois LLCs aren’t subject to franchise taxes.
If you’re a corporation owner, it’s best to connect directly with a tax professional who will determine if you owe a franchise tax and, if so, what that tax obligation is. If you’re unsure about any aspect of your responsibility, be sure to contact the Illinois Secretary of State.