Tennessee charges no personal income tax on LLC profit but applies franchise and excise tax at the entity level. The IRS default is pass-through: a single-member LLC is a disregarded entity taxed on Schedule C, and a multi-member LLC is a partnership filing Form 1065 with K-1s. An LLC can elect S-corporation treatment on Form 2553 to reduce self-employment tax once net income clears $40,000-$60,000. Non-resident owners of a foreign-owned single-member LLC file Form 5472 with a pro-forma 1120 each year.
By default the IRS treats a single-member Tennessee LLC as a disregarded entity, taxed on Schedule C of the owner's personal 1040, and a multi-member LLC as a partnership that files Form 1065 and issues K-1s. Neither pays federal entity-level tax. Profit passes through to the owners and is taxed once on their personal returns. This pass-through treatment applies to every Tennessee LLC unless the owners elect corporate taxation. The federal default is the same across all states; what changes in Tennessee is the state-level franchise and excise obligation. The pass-through result means the LLC files an information return but pays no federal tax at the entity level; the profit is taxed once on the owners' personal returns. A single owner reports the net profit on Schedule C, and multi-member owners each receive a K-1 that carries their share of profit onto their own 1040.
Tennessee charges no personal income tax on LLC profit, so pass-through income reaches the owners without a state income tax layer. Tennessee instead applies franchise and excise tax to the LLC at the entity level. The absence of personal income tax is a real advantage for high-earning owners, since the pass-through profit escapes state income tax entirely. The trade-off is the entity-level franchise and excise tax and the $300 minimum annual report. For owners comparing states, Wyoming and New Mexico charge neither an income tax nor a franchise tax on income. For a high-earning owner, the absence of a Tennessee personal income tax layer is worth more than the $300 annual report and franchise and excise minimum cost. An owner comparing Tennessee to a no-income-tax, no-franchise-tax state such as Wyoming weighs that report and franchise floor against a Tennessee operational footprint.
Tennessee franchise and excise tax is an entity-level tax that applies to LLCs regardless of their federal classification, with a $300 minimum. It is separate from the annual report and from federal income tax. The excise portion is based on the LLC's net earnings and the franchise portion on its net worth or property value. Both apply whether the LLC is taxed federally as a disregarded entity, partnership, or S-corporation. Anonymousllc.co partners with US tax preparers who calculate and file the Tennessee franchise and excise return alongside the federal returns.
An LLC elects S-corporation treatment by filing IRS Form 2553, which lets the owner take a reasonable salary and draw the rest as distributions that escape the 15.3% self-employment tax. The election becomes worthwhile once net income clears $40,000-$60,000. Below that range, the payroll compliance cost of running an S-corp outweighs the self-employment tax saved. Above it, the savings on the distribution portion grow with income. The S-corp election changes federal treatment only; the Tennessee franchise and excise tax still applies to the entity. Running an S-corp means putting the owner on payroll, filing an 1120-S, and issuing a W-2, which adds bookkeeping and payroll-tax administration through the year. The reasonable-salary rule requires the owner to pay a market wage before taking distributions, so the self-employment tax saving applies only to the distribution portion above that salary.
Default LLC owners pay 15.3% self-employment tax on net business income: 12.4% Social Security up to $168,600 plus 2.9% Medicare with no ceiling. This is on top of federal income tax. The self-employment tax funds Social Security and Medicare, which W-2 employees split with an employer. A sole owner covers both halves. Electing S-corp treatment on Form 2553 reduces this by moving the distribution portion of income outside the self-employment tax base, at the cost of running payroll and filing an 1120-S.
Non-US residents who own a US LLC owe US income tax only on income effectively connected to a US trade or business. A foreign-owned single-member LLC with no US effectively connected income owes no income tax but must file Form 5472 with a pro-forma 1120 each year. A multi-member LLC files Form 1065 and issues K-1s. An ITIN is needed for personal US tax filing where the owner has a filing obligation. Anonymousllc.co partners with US tax preparers familiar with non-resident filings and provides the ITIN service at $299 where it is required.
Form 5472 is an information return required for any US disregarded entity with 25% or more foreign ownership, filed each year alongside a pro-forma Form 1120. A foreign-owned single-member Tennessee LLC must file it. The form reports transactions between the LLC and its foreign owner, and the penalty for missing it starts at $25,000. It carries no tax itself; it is a disclosure the IRS uses to track foreign-owned entities. Anonymousllc.co's tax partners prepare Form 5472 and the pro-forma 1120 for non-resident owners. The $25,000 penalty applies per form and per year, so a non-resident owner who skips the filing for several years faces stacked penalties. Anonymousllc.co flags the 5472 obligation at intake for every foreign-owned single-member Tennessee LLC so the filing is never missed.
Under the March 21, 2025 FinCEN interim final rule, domestic reporting companies are exempt from beneficial ownership information reporting. Most Tennessee LLCs are domestic and currently exempt. Foreign reporting companies, meaning LLCs formed outside the United States that register to do business here, remain obligated to file. A Tennessee LLC formed through the Secretary of State is a domestic entity and falls inside the exemption. Anonymousllc.co confirms BOI status during intake and files the report at $150 where it applies. The interim final rule removed the reporting burden for entities formed inside the United States, so a Tennessee-formed LLC files nothing with FinCEN under the current rule. Anonymousllc.co monitors the rule for changes and files the report at $150 the moment a client's structure requires it.
No. Forming a Wyoming or New Mexico anonymous LLC and foreign-qualifying into Tennessee does not change the federal pass-through treatment or eliminate the Tennessee franchise and excise tax on income sourced to Tennessee operations. The anonymous structure changes who appears on public record, not what tax the business owes. A Wyoming parent doing business in Tennessee registers as a foreign LLC and files Tennessee franchise and excise tax on its Tennessee activity. The privacy benefit is separate from the tax result. Anonymousllc.co maps both during intake.
Yes. A Tennessee LLC elects C-corporation treatment by filing IRS Form 8832, which taxes the entity itself at the 21% federal corporate rate and taxes distributions again as dividends to the owners. Most small LLCs avoid the C-corp election because it creates two layers of federal tax, but it suits a business raising venture capital, retaining large profits inside the company, or offering equity to employees. The C-corp election changes federal treatment only; the Tennessee franchise and excise tax still applies to the entity regardless of the federal classification. Anonymousllc.co's tax partners model the pass-through, S-corp, and C-corp paths before a founder commits.
A Tennessee LLC files the Tennessee franchise and excise return each year plus its federal return: Schedule C for a single-member LLC, Form 1065 with K-1s for a multi-member LLC, or Form 1120-S under an S-corp election. A foreign-owned single-member LLC adds Form 5472 with a pro-forma Form 1120. The Tennessee franchise and excise return goes to the Department of Revenue, separate from the annual report filed with the Secretary of State. Anonymousllc.co's US tax partners prepare the federal and Tennessee returns together so nothing falls between the two agencies, and they handle the non-resident 5472 filing where it applies.
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