Alabama LLC Taxes
(2025 Guide)

Let’s delve into the specific types of Alabama LLC taxes you might encounter.

1. Federal Income Taxes for Alabama LLCs

The way your Alabama LLC handles federal income taxes depends on its classification.

Single-Member LLC Taxes (Default Status)

The IRS treats all Single-Member LLCs as Disregarded Entities for tax purposes. This means the IRS doesn’t expect the LLC itself to file its own federal income tax return. Instead, the individual owner of the Single-Member LLC files the return and pays the federal income taxes.

• If the LLC is owned by an individual: The LLC is taxed like a Sole Proprietorship, reporting income/losses on the owner’s Form 1040 (Schedule C).
• If the LLC is owned by another company: The LLC is taxed as a branch/division of the parent company.

Multi-Member LLC Taxes (Default Status)

If an Alabama LLC has two or more owners, the LLC is taxed like a Partnership.

• The LLC must file an informational Form 1065 Partnership Return with the IRS.
  
   
• The LLC also issues a Schedule K-1 to each LLC owner. The K-1s report each owner’s distributive share of the LLC’s profits or losses.
  
   
   
• This K-1 income “flows through” to the owners, and the income taxes are then paid by each owner on their personal income tax return (Form 1040).

Husband and Wife LLC Taxes

In some community property states (like Texas), a husband and wife LLC might have the option to file taxes as a Single-Member LLC (known as a Qualified Joint Venture) instead of a Multi-Member LLC. However, Alabama is not a community property state, which means Qualified Joint Ventures are not available in Alabama. Therefore, a husband and wife Multi-Member LLC in Alabama will typically be taxed as a Partnership by default.

Electing to Have Your LLC Taxed as a Corporation

Instead of the default statuses, an Alabama LLC can elect to be taxed like a Corporation. There are two main types of corporate elections:

• LLC Taxed as an S-Corporation (Elective Status): By filing Form 2553 with the IRS, your LLC can request to be taxed like an S-Corporation. This election can potentially help established businesses with consistent profits save money on self-employment taxes.

  • Tip: There are additional expenses and complexities associated with having your LLC taxed as an S-Corporation. Most new business owners shouldn’t make this tax election until their business is well-established and generates consistent revenue. We generally recommend discussing this option with your accountant once your LLC has at least $70,000 in annual net income per LLC Member. (Internal Links – Verify/insert your actual URLs)

• LLC Taxed as a C-Corporation (Elective Status): By filing Form 8832 with the IRS, your LLC can request to be taxed like a C-Corporation. While this election is uncommon for most LLCs, it can sometimes help large employers save money on healthcare fringe benefits.

  • Note: Most LLC owners do not choose to have their LLC taxed as a C-Corporation due to potential double taxation. (Internal Link – Verify/insert your actual URL)

2. Alabama State Income Tax for Alabama LLCs

For Alabama State Income Tax, the principles of pass-through taxation generally apply:

• Single-Member LLCs in Alabama: The LLC itself typically does not file a state-level income tax return. Instead, the owner includes the LLC’s profits or losses on their personal Alabama state income tax return.
• Multi-Member LLCs in Alabama: The LLC may need to file a Partnership return at the state level (informational). Additionally, each owner must include their share of the LLC’s profits or losses on their personal Alabama state income tax return.

There are also other types of Alabama business taxes that apply to specific industries and business types. We highly recommend hiring an accountant to prepare and file your state income taxes to ensure accuracy. (Internal Link – Verify/insert your actual URL)

For more detailed information about Alabama state taxes, you can contact the Alabama Department of Revenue. (External Link)

3. Local Income Tax for Alabama LLCs

Depending on your municipality (town, city, or county) in Alabama, you and/or your LLC may be required to file and pay local income taxes.

Recommendation: We advise hiring an accountant to prepare and file your local income taxes. You should also directly contact your specific municipality to inquire about their local tax requirements. (Internal Link – Verify/insert your actual URL)

4. Alabama Sales Tax

If your Alabama LLC sells tangible products or certain services to consumers within the state, you may be required to collect Alabama sales tax and obtain a Seller’s Permit (also known as a resale license, wholesale license, sales tax permit/license, or reseller permit). This permit is obtained from the Alabama Department of Revenue (DOR).

You can find more detailed information about Alabama sales tax from these official Alabama DOR resources:

• Sales Tax (External Link – Verify/insert actual URL)
• Sales and Use Tax FAQ (External Link – Verify/insert actual URL)
• Sales and Use Tax Rulebook (External Link – Verify/insert actual URL)
• ONE SPOT Filing System (External Link – Verify/insert actual URL)
• Sales and Use Tax Rates Search Tool (External Link – Verify/insert actual URL)

For broader information on various permits and licenses, read our guide on Alabama Business Licenses and Permits. (Internal Link – Verify/insert your actual URL)

If you have any specific questions about whether your Alabama LLC needs a Seller’s Permit, you can contact the Alabama Department of Revenue at 334-242-1584.

Tip: To save time and ensure accuracy with sales tax registration, collection, and payment, we recommend using a specialized service like TaxJar.

5. Alabama LLC Payroll Taxes

If your Alabama LLC plans to hire employees, you will be responsible for payroll taxes. This involves a group of taxes and associated filings, including:

• Federal income tax withholding
• State income tax withholding
• Social Security tax
• Medicare tax
  
   
• Federal unemployment taxes (FUTA)
  
   
• State unemployment taxes (SUTA)
• Local/county deductions
• Employee deductions

As an employer in Alabama, you must establish payroll, accurately withhold these taxes from employees’ paychecks, and then submit them to the appropriate state and federal government agencies.

Caution: While you can manage payroll taxes yourself, the calculations and filing requirements are often burdensome and highly complex. Errors can lead to significant penalties and fines. Most businesses choose to hire a payroll company or seek assistance from their accountant. (Internal Link – Verify/insert your actual URL)

Our Favorite Payroll Solution: For automated and hassle-free payroll tax management, we recommend Gusto Payroll.

For more official Alabama payroll tax resources, please refer to:

• Alabama DOR: Withholding Tax FAQs (External Link – Verify/insert actual URL)
• Alabama DOR: Unemployment Compensation Tax (External Link – Verify/insert actual URL)