Federal Tax Obligations for Tennessee LLCs

Tennessee LLCs owe all standard federal taxes (income tax, self-employment tax) despite Tennessee having no personal income tax. The F&E tax doesn't replace federal obligations. For the full tax guide. For formation, see how to form a Tennessee LLC.

Federal Classification

Same options as any state:

• Single-member: Schedule C (disregarded entity)
• Multi-member: Form 1065 (partnership)
• S-corp election: Form 1120S
• C-corp election: Form 1120

Self-Employment Tax

15.3% on net earnings applies to Tennessee LLC members just like any other state. This is the biggest federal tax for most LLC owners.

Tennessee-specific consideration: Since there's no state income tax layered on top, the federal SE tax + federal income tax is your ENTIRE tax burden on LLC income (beyond the entity-level F&E). This can make the total effective rate lower than in income-tax states for high earners.

F&E Tax as Federal Deduction

The Tennessee franchise & excise tax is deductible on your federal return as a business expense. This reduces your federal taxable income.

FAQ

Does Tennessee's zero income tax mean I pay less federal tax?

No. Federal taxes don't change based on state. But your TOTAL tax burden (federal + state) may be lower in Tennessee because there's no state-level personal income tax added on top.

Is S-corp election useful in Tennessee?

Yes — to reduce federal self-employment tax. But unlike other states, Tennessee's F&E tax still applies at the entity level regardless of S-corp election.