How Is an LLC Taxed?
For federal income tax purposes, an LLC is classified under IRS rules as a partnership, a disregarded entity or a corporation. By default, an LLC with two or more members is taxed as a partnership and an LLC with one member is disregarded as separate from its owner, so income flows through to the owners' returns. An LLC can instead elect to be taxed as a corporation, and an eligible LLC can elect S corporation status.
What the law says
- By default, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes, unless it files Form 8832 and elects to be treated as a corporation. IRS, Limited Liability Company (LLC)
- By default, an LLC with only one member is disregarded as an entity separate from its owner for income tax purposes, unless it files Form 8832 and elects to be treated as a corporation. IRS, Limited Liability Company (LLC)
- If a single-member LLC owned by an individual is disregarded, the owner reports its activity on Schedule C, E or F of Form 1040 or 1040-SR, depending on the type of activity, and pays self-employment tax on net earnings from a trade or business, just as a sole proprietor would. IRS, Single Member Limited Liability Companies
- A disregarded single-member LLC is still treated as a separate entity for employment taxes and certain excise taxes, and must use its own name and EIN to report and pay employment taxes. IRS, Single Member Limited Liability Companies
- An LLC classified as a partnership files Form 1065, and each owner reports their share of income, deductions and credits from a Schedule K-1. Members generally owe self-employment tax on their share of partnership earnings. IRS, LLC Filing as a Corporation or Partnership
- An eligible entity uses Form 8832 to elect how it will be classified for federal tax purposes: as a corporation, a partnership, or an entity disregarded as separate from its owner. IRS, About Form 8832, Entity Classification Election
- A Form 8832 election generally cannot take effect more than 75 days before the date it is filed or more than 12 months after it is filed. An LLC may be eligible for late election relief in certain circumstances. IRS, Limited Liability Company (LLC)
- An LLC taxed as a C corporation files Form 1120, and its income does not flow through to the owners' Form 1040. An LLC that qualifies for and elects S corporation status files Form 1120-S, and each owner reports their pro-rata share from a Schedule K-1. IRS, LLC Filing as a Corporation or Partnership
- An entity eligible to elect corporate treatment that meets the S corporation tests and files Form 2553 is treated as a corporation as of the S election's effective date and does not need to file Form 8832. IRS, Instructions for Form 2553
- Form 2553 must be filed no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year before it is to take effect. IRS, Instructions for Form 2553
FAQ
Do I need to file anything to keep the default tax treatment?
No. Form 8832 is not needed for a multi-member LLC to keep its default partnership classification; it is used to elect corporate treatment or to change a classification.
Can an LLC be taxed as an S corporation?
Yes, if it qualifies. An eligible entity that meets the S corporation tests can file Form 2553, and it then does not need to file Form 8832.
Can an LLC change its tax classification later?
Yes. The IRS says an LLC that has been treated as a partnership for a number of years can file Form 8832 to change to corporate treatment going forward.
Do single-member LLC owners pay self-employment tax?
An individual owner of a disregarded single-member LLC that operates a trade or business is subject to self-employment tax on net earnings, the same as a sole proprietor.
Related
- How to Get an EIN for an LLC
- LLC vs. Corporation: What's the Difference?
- What Is an LLC?
- Starting an LLC & Small Business by state
General legal information, not legal advice. Laws change and local rules can differ; check the linked official source or talk to a lawyer about your situation.