A limited liability company (LLC) can be a very advantageous business structure for small businesses. If you decide to form an Alabama LLC, you should be aware of the reporting and tax requirements that apply to your business.
Let's take a look at the most important ongoing Alabama LLC reporting and tax filing requirements. (If you're looking for information about other states' LLC requirements, you can review our article on LLC tax and filing requirements.)
The State of Alabama requires you to file an annual report as part of your required state Business Privilege Tax (BPT) return. See the next section for more information.
For income tax purposes, most LLCs are considered "pass-through tax entities." If you're an owner of a pass-through entity, the responsibility for paying federal income taxes passes through the LLC itself and falls on you as one of the LLC members. By default, LLCs themselves don't pay income taxes, only their members do. You'll report and pay your share of the LLC's income on your personal tax return.
Must pay state BPT. Most businesses in Alabama, including LLCs, must pay the BPT. The BPT is a type of "franchise tax" paid to the Alabama Department of Revenue (DOR) for the privilege of being organized or doing business in the state. In general, the BPT is calculated based on the business's taxable net worth and requires a minimum tax payment. As of 2023, the minimum tax is $50.
The BPT return for pass-through entities like LLCs (Form PPT) includes an Annual Report form (Form AL-CAR) that must be included with the return. There's a separate form (Form BPT-IN) for the initial return (the first return filed after the creation of your LLC). The initial return is due two and a half months after the LLC is organized.
Electing corporate tax status. Typically, LLCs are taxed as partnerships by default. However, sometimes owners of an LLC choose to have their business treated like a corporation for tax purposes. This choice is made by filing IRS Form 2553 with the IRS. If you make this election with the IRS, Alabama will also treat your LLC as a corporation for tax purposes and you'll be responsible for paying the state corporate income tax. As of 2023, the corporate tax rate for Alabama is a flat 6.5% of taxable net income from Alabama. You can pay the corporate income tax through MAT.
If your LLC has employees or plans to, you must pay employer taxes to the federal and state governments. You should get your federal employer identification number (EIN) from the IRS to report and pay these taxes as an employer.
Withholding employee wages. As an Alabama employer, you'll need to withhold and pay employee income taxes to the DOR. If you haven't done so already, you must register your business with the DOR online using MAT. You must file withholding taxes periodically: File Form A-1 quarterly or Form A-6 monthly. You'll also need to file Form A-3 each year to reconcile your LLC's tax withholding.
Visit the DOR's tax withholding webpage for more details, including links to withholding returns and other forms. You can also find a link to a DOR publication with tax tables and instructions for Alabama employers.
Unemployment insurance (UI) tax. You'll also probably need to register to pay state UI taxes to the Alabama Department of Labor. You can register for these taxes online through eGov or by using Form SR-2, Application to Determine Liability. Then, each quarter, go online to report on wages and pay the UI taxes.
If your LLC will provide taxable goods or services to customers in Alabama, you'll need to collect and pay sales tax to the state. You must register your business with the DOR through MAT to get your account number and sales tax certificate. Once your business is registered, you'll need to make periodic sales tax payments for goods and services sold. You'll need to file your returns and make payments on a monthly, quarterly, semiannual, or annual basis.
Visit the DOR's Sales and Use Tax Division website for more information. The website has helpful information and resources about the state sales and use tax, such as:
You can also find information about ONE SPOT, Alabama's online system for filing and remitting state and local sales and use taxes.
If you plan to do business outside of Alabama, you could be required to register your LLC in some or all of the states where you conduct your business activities. Every state has standards and requirements for when a business is required to register or qualify as an out-of-state business. But, in general, you'll likely need to register as an out-of-state LLC if you have a physical presence in a state, hire employees in the state, or advertise directly to residents of the state.
Check out our state guide to qualifying to do business outside your state to learn more about individual state requirements.
If you need help or guidance with managing and running your LLC, check out the articles in the LLC section of our website. If you have specific questions about your business's reporting or tax obligations, consider speaking with an Alabama lawyer. They can help you determine your tax liability, help you register with the appropriate state departments and agencies, and ensure that you're following all applicable laws.