Michigan LLC Taxes: What You Actually Need to Know (2025)

If you’re running a limited liability company (LLC) in Michigan, tax season brings obligations at federal, state, and sometimes city levels. Between all the different requirements and deadlines, Michigan LLC taxes can feel overwhelming.

Don’t worry, we’ve got you covered. This guide breaks down exactly what taxes you need to pay, when they’re due, and how to handle them without the stress.

Michigan LLC Tax Basics

Short on time? Here’s what you need to know about Michigan LLC taxes:

• LLC profits pass through to owners, so you avoid double taxation at the federal level.
• You’ll pay federal income tax (10–37%), self-employment tax (15.3%), and likely make quarterly estimated payments.
• Michigan taxes your income at a flat 4.25%; you’ll also collect 6% sales tax if you sell products or taxable services. If you have employees, expect payroll and unemployment taxes.
• The optional Flow-Through Entity (FTE) Tax can help higher earners save on federal taxes by bypassing the $10K SALT cap.
• 20+ Michigan cities charge local income taxes (1–2.4%) with separate filing requirements.
• Track all eligible business deductions (like home office, mileage, and supplies) to lower taxable income. If your profits are high enough, consider an S Corp election to reduce self-employment taxes.

How Your Michigan LLC Gets Taxed

Your LLC usually doesn’t pay federal income tax directly. Instead, profits “pass through” to you and any other members, who report that income on personal tax returns. This pass-through structure helps you avoid paying tax twice the way traditional corporations do.

For example, if your Michigan LLC makes $100,000 in profit, you personally pay federal income tax on that income at your individual rate, not at the company level.

Federal Taxes You Can’t Ignore

As an LLC owner, you’re responsible for paying several federal taxes on your profits and, if you have employees, on your payroll. These federal obligations are just one piece of your total tax picture.

• Federal income tax at rates between 10%–37%, depending on your tax bracket.
• Self-employment tax at 15.3%, which covers Social Security and Medicare. The good news: you can deduct half of this tax when you file your return.
• Quarterly estimated payments, since no employer withholds taxes for you. Mark these IRS deadlines in your calendar: April 15, June 16, September 15, and January 15.

If you have employees, you’re also responsible for federal employment taxes: Social Security and Medicare withholding (FICA), federal income tax withholding, and federal unemployment tax (FUTA). These are reported using IRS forms like 941, 940, and W-2s.

Michigan’s State Tax Landscape

Michigan keeps things simple with a flat 4.25% individual income tax rate. LLC owners pay this on their share of business profits unless they choose the Flow-Through Entity Tax election (more on that below).

If your LLC sells taxable products or services, you must collect and remit Michigan’s 6% sales tax. You’ll also need to file sales tax returns on a regular basis — monthly, quarterly, or annually, depending on your sales volume.

If you have employees, you must register for Michigan income tax withholding, pay state unemployment tax, and file any required state employer forms.

Together, these make up your standard state-level taxes as a Michigan LLC owner.

The Flow-Through Entity Tax Advantage

This strategy lets your LLC pay Michigan’s 4.25% tax at the entity level instead of you paying it personally. Since the tax is paid by the business, it’s deductible on your federal return without being limited by the federal SALT cap.

Note: The federal SALT deduction cap remains at $10,000 for 2025. While Congress has passed legislation that would increase this cap to $40,000 for households earning up to $500,000, this change would apply to future tax years. For now, the FTE Tax election remains a valuable strategy for Michigan LLC owners whose state and local taxes exceed the current $10,000 cap.

Example: If your LLC has $200,000 in profits, it could pay $8,500 in Michigan tax at the entity level. You deduct the full $8,500 federally, rather than being limited by the SALT cap. One catch: once you choose this option, you’re generally locked in for three years.

The City Tax Surprise

Here’s what catches many Michigan business owners off guard: over 20 Michigan cities impose their own income taxes.

The cities with the highest rates include:

• Detroit: 2.4% for residents, 1.2% for non-residents
• Grand Rapids: 1.5% for residents, 0.75% for non-residents
• Lansing: 1% for residents, 0.5% for non-residents

If you operate in multiple cities, you’ll need to file separate returns for each one, typically due April 30. The allocation formulas based on property, sales, and payroll can get complex fast. This is where many businesses decide professional help is worth every penny.

Smart Tax Moves to Consider

S Corporation Election

Converting your LLC to an S Corporation can significantly reduce self-employment taxes. By paying yourself a reasonable salary and taking the remaining profits as distributions, you only pay payroll taxes on the salary portion.

Example: If your LLC earns $100,000 in profit, you’d normally pay self-employment tax on the entire amount. As an S Corp, you might pay yourself $60,000 in wages (subject to Social Security and Medicare taxes) and take $40,000 as distributions (not subject to self-employment tax).

Estimated Savings: This setup could lower your self-employment tax by around $6,000 or more — depending on what the IRS considers a reasonable salary.

Don’t Miss These Deductions

Beyond structural changes, don’t leave money on the table. These common deductions can significantly reduce your tax bill:

• Home office expenses
• Business mileage at 70¢ per mile
• Health insurance premiums
• Retirement contributions
• Professional development
• Business meals (50% deductible)

Keep meticulous records — the IRS loves documentation.

Staying on Track

Success with LLC taxes comes down to organization and timing. Keep all receipts and records for at least seven years, maintain separate business and personal bank accounts, and consider working with a tax professional who knows Michigan’s quirks.

The complexity might feel overwhelming, but remember: every successful Michigan business owner started exactly where you are. Take it one step at a time, stay organized, and don’t hesitate to get professional help when the math gets fuzzy.

Your future self will thank you when tax season rolls around and you’re prepared instead of panicked.