How Arkansas Taxes LLCs in 2025
Arkansas imposes both a graduated income tax and an annual franchise tax on LLCs operating in the state. The income tax rates for 2025 range from 2% to 4.7% across three brackets, with the top rate applying to income over $8,500. While the brackets start at relatively low income levels, the top marginal rate of 4.7% is moderate compared to many other states.
LLCs are treated as pass-through entities for state tax purposes (unless they elect corporate taxation). Net income flows through to members' personal Arkansas tax returns and is taxed at the individual graduated rates.
Important: Arkansas imposes a $150 minimum franchise tax on all LLCs annually, regardless of income. This is due by May 1st each year and is separate from the income tax obligation.
Arkansas Income Tax Brackets (2025)
Arkansas uses graduated brackets for individual income tax, which apply to LLC pass-through income:
| Taxable Income | Tax Rate |
|---|---|
| $0 - $4,300 | 2.0% |
| $4,301 - $8,500 | 4.0% |
| Over $8,500 | 4.7% |
The standard deduction in Arkansas is $2,340 for single filers and $4,680 for married filing jointly. Arkansas also offers a personal tax credit of $29 per exemption.
Arkansas Franchise Tax
All LLCs registered in Arkansas must pay an annual franchise tax based on the LLC's outstanding capital stock or, for LLCs, on the authorized capital (par value of membership interests). Key details:
- Minimum tax: $150 per year
- Rate: $0.27 per $100 of outstanding capital stock (or authorized capital for LLCs)
- Maximum tax: No cap (scales with capital)
- Due date: May 1 annually
- Filing: Franchise Tax Report filed with the Arkansas Secretary of State
Tip: Most small LLCs pay only the $150 minimum franchise tax. The rate-based calculation only exceeds $150 when your LLC's authorized capital exceeds approximately $55,556.
Federal Taxes for Arkansas LLCs
Arkansas LLC owners must also pay federal taxes, which typically represent the majority of the tax burden:
- Self-Employment Tax (15.3%): 12.4% Social Security on income up to $176,100 plus 2.9% Medicare on all income. Additional 0.9% Medicare surtax applies above $200,000 (single) or $250,000 (MFJ).
- Federal Income Tax: 10% to 37% based on total taxable income
- QBI Deduction: Up to 20% deduction on qualified business income under Section 199A
Arkansas Sales and Use Tax
Arkansas has one of the higher state sales tax rates in the country:
- State sales tax: 6.5%
- Local sales taxes: Up to 5.625% additional
- Average combined rate: 9.44%
- Food (grocery items): Taxed at a reduced state rate of 0.125%
- Registration: LLCs selling taxable goods must register with the Arkansas Department of Finance and Administration
Arkansas LLC Formation Costs
- Certificate of Organization: $45 (mail) or $50 (online)
- Franchise Tax: $150 minimum annually
- Registered Agent: Required; can be a member or commercial agent ($100-$300/year)
- Business name reservation (optional): $25
Arkansas Pass-Through Entity Tax Election
Arkansas enacted a Pass-Through Entity Tax (PTET) option that allows LLCs and S-corps to elect to pay income tax at the entity level. This was implemented as a workaround for the $10,000 federal SALT deduction cap:
- Electing entities pay Arkansas income tax at the entity level
- Members receive a corresponding credit on their individual returns
- The election must be made annually
- Tax is calculated at the same graduated rates (2%-4.7%)
- This is particularly beneficial for LLC owners who itemize their federal deductions
Employment Taxes in Arkansas
If your Arkansas LLC has employees:
- Unemployment Insurance (UI): 0.3% to 14.2% on the first $7,000 of wages per employee (new employer rate: 3.1%)
- Workers' Compensation: Required for employers with 3 or more employees
- Federal payroll taxes: Standard Social Security, Medicare, and FUTA obligations
Arkansas LLC vs. Neighboring States
| State | Top Income Tax Rate | Sales Tax | LLC Annual Fee | Filing Fee |
|---|---|---|---|---|
| Arkansas | 4.7% | 6.5% | $150 franchise | $45 |
| Missouri | 4.8% | 4.225% | $0 | $50 |
| Oklahoma | 4.75% | 4.5% | $25 | $100 |
| Tennessee | 0% | 7% | $300 min | $300 |
| Mississippi | 5% | 7% | $0 | $50 |
| Louisiana | 4.25% | 4.45% | $35 | $100 |
| Texas | 0% | 6.25% | $0 | $300 |
Filing Deadlines for Arkansas LLCs
- Individual return (Form AR1000F): April 15
- Partnership return (Form AR1050): March 15 for multi-member LLCs
- Franchise Tax Report: May 1 annually
- Extension: Automatic 6-month extension with federal extension
- Estimated tax payments: April 15, June 15, October 15, January 15
Common Mistakes Arkansas LLC Owners Make
- Missing the May 1 franchise tax deadline: The franchise tax deadline is different from the income tax deadline. Late filing incurs penalties and interest.
- Confusing franchise tax with income tax: These are two separate obligations. Even if your LLC had no income, you still owe the $150 minimum franchise tax.
- Not making estimated payments: Arkansas requires quarterly estimated payments if you expect to owe $1,000 or more in state tax.
- Overlooking the PTET election: If you itemize federal deductions, the pass-through entity tax election can reduce your overall tax burden by working around the SALT cap.
- Ignoring sales tax nexus: Arkansas's combined sales tax rates are among the highest nationally. Failing to collect and remit can result in significant penalties.
Tax Deductions for Arkansas LLC Owners
- Arkansas standard deduction: $2,340 (single) or $4,680 (MFJ)
- Federal QBI Deduction: 20% of qualified business income
- Self-employment tax deduction: 50% of SE tax
- Business expenses: Ordinary and necessary business expenses
- Home office deduction: Simplified ($5/sq ft) or regular method
- Health insurance premiums: Self-employed health insurance deduction
- Retirement contributions: SEP IRA up to $69,000, Solo 401(k) up to $69,000 plus catch-up
- Vehicle expenses: Standard mileage rate or actual expenses