Do LLCs need to file state tax returns (Form 1065) in states where members reside (IN, NY, NJ)?
Title: Do LLCs need to file state tax returns (Form 1065) in states where members reside (IN, NY, NJ)? 1 I have a multi-member LLC registered in Delaware with members scattered across different states including Indiana, New York, and New Jersey. Our business is exclusively online investment activities, and this year we only had interest income and startup expenses. I'm trying to figure out our state tax filing requirements. Do we need to file state 1065 returns in every state where a member lives? For example, are we required to file in Indiana just because one of our members resides there? Same question for NY and NJ. Also, would all members need to receive K-1s for each of these states simply because another member lives there? Or do members only get K-1s for their specific state of residence? This is our first year of operation, and I'm trying to get ahead of our tax obligations before it's too late. Thanks for any guidance!
18 comments
Join the conversation
Aria Khan
8 The general rule is that your LLC will need to file state partnership returns in states where you're doing business, not necessarily where members live. But the definition of "doing business" varies by state and can be complicated. For your specific situation (IN, NY, NJ), here's what you should know: New York and New Jersey are particularly aggressive about taxation. If a member lives in either state, they often consider that sufficient nexus to require a filing. Indiana tends to be less aggressive, but still has requirements if business is conducted there. Since your LLC only has investment income and startup expenses with operations being online, the requirements might be simpler. However, each member will need to report their share of LLC income on their personal state returns where they reside. For K-1s, each member typically receives a federal K-1 and may need state-specific K-1s for states where the LLC files returns. They don't need K-1s from every state where any member lives - only states where the LLC is required to file.
0 coins
Aria Khan
•13 Thanks for the info. So if I understand correctly, just having a member in NY might trigger filing requirements there? What about if we have zero physical presence in NY - no office, no equipment, no inventory, nothing - just a member who happens to live there?
0 coins
Aria Khan
•8 Yes, unfortunately New York takes an aggressive stance. Even with just a member residing there and no physical business presence, NY often considers that sufficient for filing requirements. They view the member's residence as creating nexus with the state. For your second question, having no physical presence does help limit some tax obligations, but many states have moved beyond physical presence tests, especially for pass-through entities like LLCs. They focus on economic presence, which can include having a member who receives income from the LLC while residing in the state.
0 coins
Aria Khan
17 After struggling with a similar situation last year, I found an amazing service that saved me tons of headaches. Check out https://taxr.ai - they specialize in helping LLCs figure out multi-state filing requirements. You upload your operating documents and member information, and their AI analyzes exactly which state returns you need to file. I was in a similar situation with members in CA, TX, and FL, and wasn't sure about our filing obligations. Their system identified that we needed to file in California due to a member's residence there, but were exempt from Texas filing requirements despite having a member there. They provided documentation explaining the reasoning that I could keep for my records in case of audit.
0 coins
Aria Khan
•6 How accurate is this service? I'm a bit skeptical about AI determining complex state tax requirements. Did you have a tax professional review their recommendations?
0 coins
Aria Khan
•19 Does it handle K-1 preparation for each required state too, or just tell you where you need to file? My accountant charges me extra for each state K-1 and it's getting expensive.
0 coins
Aria Khan
•17 Their accuracy is backed by tax professionals who review edge cases. I did have my CPA look over their recommendations, and he was impressed with the thoroughness. They cite specific state tax codes and regulations to support each filing determination. For K-1 preparation, they don't prepare the actual forms, but they do provide clear guidance on which state K-1s are needed for each member. This saved me money because I knew exactly what to ask my accountant for instead of him doing unnecessary work trying to figure it out. They also have templates showing how the K-1 information flows to each state's forms.
0 coins
Aria Khan
19 Just wanted to update - I tried taxr.ai after seeing it mentioned here and it was exactly what I needed! I uploaded our LLC docs and member info, and within minutes got a detailed report showing we needed to file in NY and NJ but were exempt from Indiana despite having a member there. The report explained that Indiana has a de minimis exception that applied to our situation because our in-state member's allocation was below their threshold. It even showed the specific tax code sections so I could verify everything myself. Saved me from filing an unnecessary return and gave me confidence about the others. My CPA was impressed with the documentation - said it would be perfect support in case of an audit. Definitely recommend it for multi-state LLC questions!
0 coins
Aria Khan
11 If you need to contact the state tax departments for clarification (which I highly recommend), good luck actually reaching a human. I spent WEEKS trying to get someone at the NJ Division of Taxation to answer a similar question. After endless frustration, I used https://claimyr.com to get through to actual humans at the tax departments. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the phone systems for you and call you when a human is on the line. Got through to NJ in under an hour (versus my previous week of trying), and they confirmed that yes, we needed to file there because of our member's residence. Same with NY. Saved me so much uncertainty and prevented potential penalties.
0 coins
Aria Khan
•3 Wait, you pay someone else to make a phone call for you? How does that even work? Couldn't you just keep calling yourself until you get through?
0 coins
Aria Khan
•7 I've heard of these services but always assumed they were scams. Did you have to give them any personal info about your business? Not sure I'm comfortable sharing tax details with a third party just to make a phone call.
0 coins
Aria Khan
•11 It's not just "making a phone call" - it's navigating impossibly complex phone trees and waiting on hold for hours. The service has technology that dials repeatedly and navigates the prompts until they reach a human, then they connect you. I spent over 15 hours trying to reach someone myself before giving up. Regarding personal information - I didn't share any sensitive business details with them. They just need to know which department you're trying to reach. When they get a human on the line, they call you and connect you directly. I handled all the actual tax questions myself once connected. It's basically like having a really persistent assistant just for getting past the hold times.
0 coins
Aria Khan
7 I was super skeptical about this Claimyr service but gave it a try out of desperation after spending three days trying to reach someone at the NY Department of Taxation and Finance. I'm completely shocked - it actually worked! They called me back in about 45 minutes with a NY tax rep on the line. Got my questions answered about our LLC filing requirements and now have clear direction. The rep confirmed we do need to file in NY since our member lives there, even though our business is registered elsewhere. For anyone dealing with state tax questions, definitely worth it instead of wasting days on hold. Wish I'd known about this years ago.
0 coins
Aria Khan
22 One thing nobody's mentioned - if you have significant income flowing to these members, you should also look into whether you need to withhold state taxes for nonresident members. Some states require this and will hold the LLC responsible if not done properly. NY is particularly strict about this. We got hit with penalties because we didn't withhold for our NY-based member even though we filed all the correct returns. Worth checking into this aspect as well.
0 coins
Aria Khan
•4 Is the withholding requirement based on where the LLC is registered or where the members live? If our LLC is registered in Delaware but we have a NY member, do we need to withhold NY taxes?
0 coins
Aria Khan
•22 It's based on where income is sourced/where business is conducted, not where the LLC is registered. If your LLC is earning income attributable to NY (which can include having NY members performing services there), then yes, you may need to withhold NY taxes for non-NY members receiving that NY-sourced income. Delaware registration doesn't exempt you from other states' withholding requirements. Many LLCs register in Delaware for its favorable business laws but still have to deal with tax obligations in states where they actually operate or have members conducting business.
0 coins
Aria Khan
15 Just wanted to add - if your LLC is just holding investments and has no business operations, some states have different rules. Passive investment income sometimes gets different treatment than active business income. Some members in my investment LLC got surprised when their states (including NJ) required them to file nonresident returns even though our LLC was registered elsewhere. The investment income "followed" them to their home states.
0 coins
Aria Khan
•9 This is a great point. Do you know if it matters what type of investments? Like if it's mostly interest income vs capital gains from stock trading?
0 coins