Arizona LLC Taxes — Step 8 of 8
Arizona’s individual income-tax rate is 2.5% of Arizona taxable income, rather than a simple percentage of LLC gross receipts or net profit. Federal classification, owner circumstances and an eligible PTE election affect the filing obligations.
Default pass-through treatment does not eliminate every entity-level option. An eligible partnership or S corporation may elect Arizona’s PTE income tax at 2.5%, with the election made by the return’s due date including extensions. Section 43-1014 requires notice and at least 60 days for eligible individual, estate and trust owners to opt out; ineligible and opting-out owners are excluded. Review estimated payments, eligible-owner credits and return instructions before electing. This is separate from a federal S-corporation election.
- Default tax
- Pass-through
- Federal income tax
- Yes
- Self-employment
- Social Security limits and Medicare rules apply
- AZ state income tax
- Flat 2.5%
- Franchise tax
- None
- This step
- Final 🎉
- Overview
- All steps →
How an Arizona LLC Is Taxed
By default, the IRS doesn't tax an LLC as its own thing — it "passes through" the profits to the owners, who report them on their personal returns. How that works depends on how many members you have:
Treated as a "disregarded entity." You report business profit on Schedule C with your personal Form 1040.
Treated as a partnership. The LLC files Form 1065 and issues each member a Schedule K-1 for their share.
On your share of the profit, you'll owe three taxes total:
- Federal income tax — at your personal marginal rate, after the standard deduction and the 20% QBI deduction many LLC owners qualify for.
- Self-employment tax (15.3%) — covering Social Security and Medicare on your active business earnings (half is deductible).
- Arizona state income tax — a flat 2.5% on your taxable income, regardless of how much you earn. No brackets, no tiers.
Arizona LLC Federal + State Tax Estimator
Enter a separately determined Arizona taxable-income base to illustrate the 2.5% rate. This tool does not compute federal income tax, self-employment tax, deductions, credits, apportionment or PTE election savings.
Arizona taxable-base illustration
Arizona 2.5% individual rate. Enter a separately determined state taxable base; this is not net-profit-to-total-tax estimation.
Enter a non-negative taxable base.
Excludes federal income and self-employment taxes, deductions, credits, sourcing and PTE election comparisons. This tool does not prepare a return.
Could an S-Corp Election Save You Money?
An S-corporation election requires reasonable compensation, payroll and eligibility review; there is no universal profit threshold. Arizona’s separate eligible PTE election also requires its own election, owner notice, tax-base and credit analysis.
- File Form 2553 with the IRS to elect S-corp status (the S-corp election — not Form 8832, which is for C-corp treatment).
- Review reasonable compensation, payroll costs, eligibility and actual owner circumstances. No universal profit threshold establishes S-corporation savings.
- Run the numbers with a CPA — payroll, reasonable-salary rules, and extra filings mean it isn't automatically a win for everyone.
Don't forget your TPT and any city taxesThe estimator above covers income taxes only. If your business sells taxable goods or services, you're also collecting and remitting Arizona's Transaction Privilege Tax (see Step 7) — that's a separate obligation from your personal income tax return, calculated on gross receipts rather than net profit.
- ✓Optional formation assistance; confirm filing scope, service pricing and submission responsibilities.
- ✓Review address-use rules and privacy policies; a service does not remove all information from public filings.
- ✓Confirm whether EIN assistance is offered, applicant eligibility and any provider assistance fee.
- ✓Review address-use rules and privacy policies; a service does not remove all information from public filings.
Disclosure: LLC School may earn a commission via this link, at no cost to you. See our advertising disclosure.
From naming your LLC to understanding your taxes, you now know exactly how to start and run an Arizona LLC — including its most distinctive quirk, the publication requirement. The last move is the easiest: file it. Compare the top formation services, or go straight to our #1 pick.
Separate Arizona PTE election and owner notice
Default pass-through treatment does not eliminate every entity-level option. An eligible partnership or S corporation may elect Arizona’s PTE income tax at 2.5%, with the election made by the return’s due date including extensions. Section 43-1014 requires notice and at least 60 days for eligible individual, estate and trust owners to opt out; ineligible and opting-out owners are excluded. Review estimated payments, eligible-owner credits and return instructions before electing. This is separate from a federal S-corporation election.
Arizona LLC Taxes — FAQ
Ahmad Adil is the founder and CEO of LLC School. The tax guidance here — pass-through treatment by default, federal income and self-employment tax, Arizona's flat 2.5% state rate, and the separate TPT obligation — reflects current IRS and Arizona Department of Revenue rules. This is educational information, not tax advice; consult a CPA for your situation.
About Ahmad Adil → Arizona LLC Overview →