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How the IRS classifies an LLC by default

The IRS treats a single-member LLC as a disregarded entity and a multi-member LLC as a partnership unless the LLC elects otherwise. An LLC that wants to be taxed as a corporation files Form 8832, and an eligible LLC that wants S corporation treatment files Form 2553.

Last checked against the official sources listed on this page.

Published by Vermilion Vitez LLC, which sells LLC formation and resells registered-agent service fulfilled by Registered Agents Inc.

The defaults

An LLC is a business structure created under state law, and the IRS decides how it is taxed at the federal level. A domestic LLC with at least two members is classified as a partnership unless it files Form 8832 and elects to be treated as a corporation. An LLC with a single member is a disregarded entity unless it files Form 8832 and elects corporation treatment.

One limit applies to a disregarded single-member LLC: for employment tax and certain excise taxes, the IRS treats it as a separate entity even though it is disregarded for income tax.

How each default reports

A disregarded single-member LLC reflects its activities on the owner's federal tax return. For an individual owner, that is generally Schedule C, Schedule E, or Schedule F. An owner who operates a trade or business pays self-employment tax on the net earnings in the same way a sole proprietor does.

A partnership files Form 1065, and each owner reports a pro-rata share of income, credits, and deductions on Schedule K-1. A corporation files Form 1120, and a qualifying LLC that elected S corporation status files Form 1120-S with each owner reporting a share on Schedule K-1 (Form 1120-S).

Electing corporation treatment

Form 8832 is the entity classification election. An eligible entity uses it to be treated as a corporation, a partnership, or an entity disregarded as separate from its owner. The form is also how an LLC changes its classification later.

A classification election generally cannot take effect more than 75 days before the date the election is filed, and it cannot take effect later than 12 months after that date.

Publication 3402

Publication 3402, Taxation of Limited Liability Companies, collects the federal income, employment, and excise tax information for LLCs.

Entities that are corporations no matter what

Some entities are treated as corporations automatically and do not get to choose. The IRS list includes a business entity whose statute describes or refers to it as incorporated or as a corporation, a joint stock association, a state-chartered bank with FDIC-insured deposits, and an entity wholly owned by a state or a political subdivision. An LLC is not on that list.

A special rule for spouses

A business owned solely by a husband and wife as community property can be treated as a disregarded entity or as a partnership, and the IRS accepts the position the owners take. A change in that reporting position is treated as a conversion of the entity.

The state side is separate

The classification above is federal. Forming the LLC is a state filing, and Vermilion Vitez sells LLC formation at $123.75 plus the state filing fee.

Related page on vermilionvitez.com: https://vermilionvitez.com/llc-formation

Official sources

FAQ

What is the default tax classification of a single-member LLC?

A disregarded entity. The LLC is not treated as separate from its owner for income tax unless it files Form 8832 and elects corporation treatment.

What is the default for an LLC with two or more members?

A partnership, unless the LLC files Form 8832 to elect corporation treatment.

Does a single-member LLC always need an EIN?

Not always. A single-member disregarded entity with no employees and no excise tax liability can use the owner's SSN or EIN for income tax reporting. The IRS says most new single-member LLCs obtain an EIN, and one is needed for employment tax.

Are there entities the IRS treats as corporations automatically?

Yes. A business entity whose statute calls it incorporated or a corporation, a joint stock association, a state-chartered bank with FDIC-insured deposits, and an entity wholly owned by a state or political subdivision are classified as corporations. A limited liability company is not one of them.

This page is general information about how a filing works, taken from the official sources listed above. It is not legal, tax, or financial advice, and it does not recommend any business structure. Confirm current forms, fees, and deadlines on the official source before you file.

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