Embedded Files
By default, the IRS taxes LLCs based on the number of members (owners). A Single-Member LLC is treated as a sole proprietorship, while a Multi-Member LLC is taxed as a partnership.
Default Tax Classification
When you apply for an EIN, the IRS automatically assigns your LLC a tax classification based on how many members it has.
Electing a Different Tax Status
If you prefer, you can choose to have your LLC taxed as a corporation. After getting your EIN, you can file:
Form 8832 to be taxed as a C Corporation, or
Form 2553 to be taxed as an S Corporation
These options are available if they better suit your business goals or tax strategy.
Single-Member LLC Taxes
Default Classification:
A Single-Member LLC is considered a Disregarded Entity by the IRS. This means the LLC itself isn’t taxed separately—taxation flows through to the owner.
There are a few variations depending on who owns the LLC:
If owned by a U.S. citizen or resident, it’s taxed as a Sole Proprietorship.
If owned by a non-U.S. resident, the LLC is taxed based on how the individual is classified under U.S. tax law.
If owned by a company, the LLC is treated as an extension (branch or division) of the parent business.
Electing a Corporate Tax Status:
Single-Member LLCs may choose to be taxed as a C Corporation (by filing Form 8832) or an S Corporation (by filing Form 2553), if eligible. These options may offer tax advantages depending on your business structure and income.
Click the links above to learn more about the rules and qualifications for each option.
Multi-Member LLC Taxes
Default Classification:
By default, a Multi-Member LLC is taxed as a Partnership. Unlike Single-Member LLCs, Multi-Member LLCs are not considered Disregarded Entities.
Special Case – Married Couples:
If a Multi-Member LLC is owned by a married couple living in a community property state, the LLC may choose to be taxed as a Qualified Joint Venture instead of a partnership.
Electing Corporate Tax Status:
Like Single-Member LLCs, Multi-Member LLCs also have the option to be taxed as a C Corporation (by filing Form 8832) or an S Corporation (by filing Form 2553), if they meet the IRS requirements.
Pass-Through Taxation
Single-Member and Multi-Member LLCs are generally subject to pass-through taxation. This means the LLC doesn’t pay income taxes at the business level. Instead, the profits (or losses) are passed on to the owners, who report them on their individual tax returns.
LLC Disregarded Entity
What Does “Disregarded Entity” Mean for an LLC?
The term “disregarded entity” is used by the IRS and refers specifically to Single-Member LLCs that haven’t elected to be taxed as a C-Corporation or S-Corporation.
When an LLC is “disregarded,” the IRS ignores the separation between the LLC and its owner for tax purposes only. Legally, the LLC and owner are still separate, but for taxes, the IRS treats them as the same person.
If a person owns the LLC, it’s taxed like a Sole Proprietorship, and the owner reports the LLC’s income and expenses on Schedule C, E, or F of their personal tax return.
If a company owns the LLC, then the LLC is treated as a division or branch of the parent company, and its income is reported on the parent company’s tax return.
This tax setup is what makes the LLC a “disregarded entity.”
Husband and Wife LLC Tax Treatment
By default, the IRS treats a Husband and Wife LLC as a Partnership, just like any other Multi-Member LLC. However, in certain cases, spouses can choose to be taxed as a Qualified Joint Venture instead.
Under a Qualified Joint Venture, the LLC is taxed as a single unit, allowing spouses to file one tax return instead of two. This often leads to simplified paperwork, lower accounting costs, and potential tax savings.
Additionally, this setup allows each spouse to receive Social Security and Medicare credit without paying extra taxes.
Important: Only LLCs owned by spouses in Community Property States are eligible to elect Qualified Joint Venture status. These states include:
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Note: The IRS has specific requirements for electing this status, and not all businesses will qualify. Be sure to review the IRS guidelines or consult a tax professional.
LLC Taxed as a Sole Proprietorship
This is the default tax status for all Single-Member LLCs.
You don’t need to file any special forms with the IRS to choose this classification.
Instead, the LLC’s profits or losses are simply reported on the owner’s personal income tax return (Form 1040). This setup is known as pass-through taxation, and it simplifies the tax process for single-member businesses.
LLC Taxed as a Partnership
This is the default tax classification for Multi-Member LLCs.
You don’t need to file any special forms with the IRS to choose this status. Instead, the LLC’s profits and losses pass through to each Member’s personal income tax return (Form 1040).
Additionally, the LLC must file IRS Form 1065 (Partnership Return) and issue a Schedule K-1 to each Member to report their share of the business income.
LLC Taxed as an S-Corporation
LLC Taxed as an S-Corporation
This example focuses on a Single-Member LLC taxed as an S-Corp, but the same rules apply to Multi-Member LLCs electing S-Corporation tax status.
LLCs don’t have to stick with their default IRS tax classification. If you want your LLC to be taxed as an S-Corporation, you must file IRS Form 2553.
The Main Advantage: Self-Employment Tax Savings
In a default Sole Proprietorship status, all of your LLC’s profits are subject to self-employment tax (Social Security and Medicare), which is 15.3% of net income.
Example:
If your LLC earns $100,000 in net income, you'll owe $15,300 in self-employment tax.
But if your LLC elects S-Corporation taxation, you must pay yourself a reasonable salary as an employee. Only that salary is subject to self-employment taxes — the remaining profit is not.
Example:
LLC net income: $100,000
Owner’s salary: $60,000
Self-employment tax: $9,180 (15.3% of $60,000)
Remaining $40,000 is not subject to self-employment tax
Tax savings: $6,120
Important Considerations
This tax benefit comes with extra responsibilities and costs:
Payroll setup and processing
Quarterly and annual payroll tax filings
Form 1120-S (S-Corp tax return)
Increased bookkeeping and accounting needs
These additional expenses typically range from $1,500 to $2,500 per year.
Because of this, electing S-Corp tax status generally makes sense when your LLC earns at least $75,000–$80,000 in net income.
! Speak with a tax professional before making an S-Corp election. There are rules, deadlines, and long-term considerations that may impact your decision.
LLC Taxed as a C-Corporation
LLC Taxed as a C-Corporation
An LLC doesn’t need to stick with its default IRS tax classification. If you'd like your LLC to be taxed as a C-Corporation, you must file IRS Form 8832.
Note: LLCs taxed as C-Corps are relatively uncommon and typically only make sense for specific business models. Be sure to speak with a qualified accountant before choosing this tax classification.
Potential Advantage: Income Splitting
One key benefit of C-Corp taxation is income splitting. This allows business owners to:
Pay themselves a reasonable salary, and
Leave the remaining profits in the company
This strategy can help keep the owner in a lower personal tax bracket. However, it must be done carefully to avoid the Accumulated Earnings Tax, which applies when companies retain earnings for too long without a valid business reason.
! This is an advanced tax strategy and requires guidance from an experienced tax professional.
Major Disadvantage: Double Taxation
LLCs taxed as C-Corps face double taxation:
The company pays corporate income tax on its profits
Then, when profits are distributed to owners as dividends, those are taxed again on the owner’s personal return
This differs from pass-through entities (like Sole Proprietorships, Partnerships, or S-Corps), where profits are only taxed once — on the owner’s personal tax return.
Summary
While C-Corp taxation may offer strategic advantages for large or highly profitable businesses, most small business owners won’t benefit from this structure.
That’s why we include this section for reference only — about 95% of LLCs are better off using default tax classification or electing S-Corp status instead.
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