Small Business

Inactive LLC Inquiry

I created an LLC in 2017. It's been inactive since then. I was not reporting expenses nor income. It is now 2021 and is the first year I started to utilize it for a side hustle. Should I have been filing taxes on this LLC from 2017 - 2020 although it was inactive? Will I be penalized for not filing taxes on an LLC which is inactive?

Answer:

As a CPA, I came across this website and joined just last week, and I just came across your question.

To provide a complete and accurate answer, one would need to know more details about your situation.

First, how many owners have there been for the LLC from 2017 to 2020? Second, if this a situation where the LLC is owned by a married couple? Third, did you ever make any election to determine how the LLC would be taxed for federal income tax purposes? Its classification (disregarded entity, partnership, C corporation, S corporation) for federal income tax purposes would determine whether or not you should have been filing separate federal income tax returns for this LLC.

Besides considering federal income tax returns, you would need to consider state income tax returns or annual reports (depending on the state in which the LLC was created, as you did not provide that detail). It is often the case that returns or reports need to be filed with a state each year, even if it was inactive and even if you are required to file a federal income tax return.

So, yes, there very well could be penalties involved for not filing. However, more needs to be known to make that determination.

Feel free to contact me if you wish to engage me to help you.

Answer Provided by: Adam Dickreiter Adam Dickreiter
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