Tennessee LLC Taxes

LLC Pass-Through Taxation

By default, LLCs don't pay taxes directly. Instead, the LLC members report the income (or losses) on their personal Form 1040 tax return. This is called pass-through taxation — tax responsibility "passes through" the LLC to its owners.

How Are LLCs Taxed in Tennessee?

By default, a Tennessee LLC is taxed by the IRS based on the number of members:

• An LLC with 1 owner (Single-Member LLC) is taxed like a Sole Proprietorship
• An LLC with 2+ owners (Multi-Member LLC) is taxed like a Partnership

These are the "default" statuses — automatically applied based on member count. You can also elect to have your LLC taxed as a Corporation (S-Corp or C-Corp) by filing extra paperwork with the IRS.

Single-Member LLC (default)

The IRS treats Single-Member LLCs as Disregarded Entities — the LLC doesn't file its own federal return. Instead, the owner reports LLC income on their personal Form 1040 (Schedule C if owned by an individual).

Multi-Member LLC (default)

Multi-Member LLCs file a Form 1065 Partnership Return and issue a Schedule K-1 to each member. Each member then reports their share of profits on their personal Form 1040.

Electing Corporate Taxation

• S-Corporation: File Form 2553 with the IRS. Can reduce self-employment taxes once the LLC has consistent profits (generally $70,000+ net income per member). Speak with an accountant first.
• C-Corporation: File Form 8832 with the IRS. Uncommon for small LLCs. Primarily useful for large employers offering healthcare fringe benefits.

Tennessee State Income Tax

Good news — Tennessee does not have a state-level personal income tax. You do not need to file a state income tax return for your Tennessee LLC.

Tennessee eliminated its Hall Income Tax as of January 1, 2021. Tennessee now has no state income tax on wages, salary, or business income passed through to members. However, Tennessee LLCs must still file the Franchise and Excise Tax — see below.

Tennessee Special LLC Taxes

Tennessee Franchise and Excise Tax (F&E)

Tennessee imposes a Franchise and Excise Tax on LLCs with business activity in Tennessee:

• Franchise Tax: 0.25% of the greater of (a) net worth or (b) real and tangible property in Tennessee. Minimum tax: $100.
• Excise Tax: 6.5% of net earnings from Tennessee business activity
• Exemption: LLCs with less than $50,000 in net earnings and less than $50,000 in Tennessee net worth may qualify for an exemption

Filed annually using Tennessee Form FAE170.

Local Income Tax

You and/or your LLC may also need to file and pay income taxes with your local municipality (city, county, etc.). Contact your local government or hire an accountant to confirm local requirements.

Tennessee Sales Tax

If your LLC sells taxable products (and sometimes services) in Tennessee, you may need to collect sales tax and register for a Seller's Permit (also called a resale license or sales tax permit).

Tennessee's state sales tax rate is 7% on most goods, and 4% on food. Local rates add up to 2.75%, making Tennessee's combined rates among the highest in the US (up to 9.75%).

Register for Tennessee Seller's Permit →

Contact the Tennessee Department of Revenue at 800-342-1003 with questions.

Tennessee LLC Payroll Taxes

If your Tennessee LLC has employees, you must handle payroll taxes, which include:

• Federal income tax withholding
• Tennessee state income tax withholding (Tennessee has no state income tax withholding)
• Social Security and Medicare taxes (FICA)
• Federal unemployment tax (FUTA)
• Tennessee state unemployment tax (SUTA)

Payroll calculations are complex — most LLC owners hire a payroll service or accountant.

Tennessee Tax Agency Contact

Tennessee LLC Taxes — FAQs