How the IRS classifies LLCs by default, when an S-corp or C-corp election pays off, what self-employment tax costs, who files Form 5472, where multi-state nexus creates liability, and the annual filings every classification owes.
The short answer: An LLC has no tax classification of its own. A single-member LLC defaults to disregarded-entity treatment on Schedule C, a multi-member LLC to partnership treatment on Form 1065, and either elects S-corp via Form 2553 or C-corp via Form 8832.
Pick the owner type that matches your LLC to jump to the classification, form, and deadline that apply.
An LLC has no tax class of its own. A single-member LLC defaults to a disregarded entity on Schedule C; a multi-member LLC defaults to a partnership on Form 1065. Either can elect S-corp (Form 2553) or C-corp (Form 8832).
The IRS runs a "check-the-box" system under Treasury Regulation § 301.7701-3. An LLC inherits one of four buckets - sole proprietorship, partnership, S-corporation, or C-corporation - by member count and elections filed. Both default classifications are pass-through: the LLC owes zero federal income tax, and owners pay at individual rates.
| Member count | Default treatment | Entity return | Owner schedule | Election form |
|---|---|---|---|---|
| 1 member (US) | Disregarded entity | None | Schedule C / Schedule E | Form 8832 or 2553 |
| 2+ members | Partnership | Form 1065 + K-1 | Schedule E, Part II | Form 8832 or 2553 |
| Any, S-corp elected | S-corporation | Form 1120-S + K-1 | Schedule E + W-2 wages | Form 2553 |
| Any, C-corp elected | C-corporation | Form 1120 | Form 1099-DIV dividends | Form 8832 |
| 1 member (non-resident) | Disregarded, reportable | Pro-forma 1120 + Form 5472 | Home-country return | Cannot elect S-corp |
Source: Treasury Regulation § 301.7701-3 (check-the-box rules), verified July 2026.
Form 2553 silently incorporates the Form 8832 election, so you do not file both. Once made, a classification election binds for 60 months under § 301.7701-3(c)(1)(iv). For a non-resident owner, default classification carries a trap: a single-member LLC owned by a non-US person stays disregarded for income tax but becomes reportable, triggering Form 5472 plus a pro-forma Form 1120.
An LLC elects S-corp on Form 2553 by March 15 for the current tax year, or within 75 days of formation. Miss it and Rev. Proc. 2013-30 grants late relief for up to 3 years and 75 days.
| Deadline type | Date | Statute / authority | Relief available |
|---|---|---|---|
| Current-year election | March 15 (day 15, month 3) | IRC § 1362(b); Form 2553 | Late relief under Rev. Proc. 2013-30 |
| New LLC from inception | Within 75 days of formation | Rev. Proc. 2013-30 § 4.01 | Same 3-year, 75-day window |
| Late-election ceiling | 3 years + 75 days after intended date | Rev. Proc. 2013-30 | Reasonable-cause statement |
| Re-election lockout | 60 months after a prior election | Treas. Reg. § 301.7701-3(c)(1)(iv) | IRS consent to shorten |
Source: IRS Instructions for Form 2553 and Rev. Proc. 2013-30, verified July 2026.
An S-corp pays no entity-level income tax. Shareholders take a reasonable W-2 salary subject to FICA and draw the rest as distributions free of FICA. The differential is 15.3% on every dollar shifted from salary to distribution. Payroll administration is the largest added cost - budget $400 to $1,200 annually for a payroll service plus clean books. To retroactively elect, write "FILED PURSUANT TO REV. PROC. 2013-30" across the top of Form 2553 and attach a reasonable-cause statement.
A reasonable salary is what a third party would pay for the same services in the same industry, geography, and hours. There is no statutory safe harbor. The leading case, Watson v. United States (8th Cir. 2012), upheld the IRS recharacterizing $93,000 of distributions as wages after a CPA paid himself $24,000 while taking $375,000 in distributions. Most practitioners set a floor of 30-40% of net profit or the market median, whichever is higher.
Reasonable salary interacts with the Qualified Business Income deduction under IRC § 199A: a higher salary trades 15.3% FICA savings for a smaller 20% QBI deduction, and above the 2026 threshold of $383,900 (married filing jointly) the math sharpens for specified service businesses.
A default LLC owner pays 15.3% self-employment tax on net profit under IRC §§ 1401-1402: 12.4% Social Security up to the $176,100 wage base and 2.9% uncapped Medicare, plus a 0.9% surtax above $200,000.
| Net profit | SE tax (15.3%) | Effective rate on profit | Half-of-tax deduction |
|---|---|---|---|
| $50,000 | $7,065 | 14.1% | $3,532 |
| $100,000 | $14,130 | 14.1% | $7,065 |
| $150,000 | $21,194 | 14.1% | $10,597 |
| $176,100 (SS cap) | $24,882 | 14.1% | $12,441 |
Source: IRS Schedule SE and IRC §§ 1401-1402, verified July 2026. Figures apply the 92.35% net-earnings adjustment; above the $176,100 wage base the marginal rate drops to 2.9%.
Self-employment tax is a bigger line item than federal income tax for most small-business owners. On $100,000 of net profit, SE tax is $14,130 after the half-deduction adjustment. On $200,000 it climbs to about $25,000 once the Medicare components and surtax compound. Every dollar of profit shifted into S-corp distributions saves 15.3 cents of SE tax, which is the entire logic of the S-corp election.
SE tax applies only to active, earned income. Rental income on Schedule E, dividends, capital gains, and passive royalties escape SE tax. General partners and active member-managers of a multi-member LLC owe SE tax on their distributive share under § 1402(a); limited partners are exempt under § 1402(a)(13). The courts have sided with the IRS that active LLC members owe SE tax even when labeled "limited" (Renkemeyer v. Commissioner, 136 T.C. 137 (2011)). Non-resident owners pay no SE tax, because social-security treaties exempt them from US payroll taxes on US-source self-employment income.
Every non-resident-owned single-member US LLC files Form 5472 with a pro-forma Form 1120 each year, even at $0 income, under Treasury Regulation § 1.6038A-1. The penalty for missing it is $25,000 per form per year. An owner with a US tax-return obligation needs an ITIN as their taxpayer ID.
| Filing | Who files | Due date | Extension | Penalty |
|---|---|---|---|---|
| Form 5472 + pro-forma 1120 | Non-resident single-member LLC (disregarded) | April 15 | Oct 15 (Form 7004) | $25,000/form/year (§ 6038A(d)) |
| Form 1065 + K-1 | Non-resident multi-member LLC | March 15 | Sept 15 (Form 7004) | $245/partner/month (§ 6698) |
| Form 1040-NR | Owner with US-source ECI | April 15 | Oct 15 (Form 4868) | Standard FTF / FTP |
Source: IRS Instructions for Form 5472 and IRC § 6038A, verified July 2026.
The filing reports reportable transactions between the LLC and its foreign owner: capital contributions, distributions, loans, rents, royalties, services, and sales. The initial formation capital wired in year one counts. The pro-forma 1120 is filed largely blank, mailed paper-only to the IRS Ogden service center, and is not e-filed. Multi-member non-resident LLCs file Form 1065 instead - the two regimes are mutually exclusive.
The five most common Form 5472 errors:
An LLC owes state income tax where it has nexus, not where it formed. Physical presence or crossing a state's economic-nexus threshold ($100,000 to $500,000 in sales after South Dakota v. Wayfair) creates the liability. Formation state governs only fees.
| Nexus type | Trigger | Threshold | Governing authority |
|---|---|---|---|
| Physical nexus | Office, employee, inventory (FBA) | Any presence | Pre-Wayfair physical-presence rule |
| Economic nexus (sales tax) | Remote sales into a state | $100,000-$500,000 or 200 transactions | South Dakota v. Wayfair (2018) |
| Income-tax nexus | Employee or contractor in state | 1 remote employee | Telebright Corp. v. NJ (2012) |
| Apportionment | Nexus established | Single-sales-factor in most large states | State statute |
Source: South Dakota v. Wayfair, 138 S. Ct. 2080 (2018) and state revenue departments, verified July 2026.
The four anonymous-LLC formation states have distinct state-tax profiles. Wyoming and Nevada levy 0% state income tax; Delaware charges a flat $300 LLC franchise tax; New Mexico charges $0 in annual LLC fees.
| State | State income tax | Annual fee | Franchise tax | All-in formation |
|---|---|---|---|---|
| Wyoming | 0% | $60 annual report | None | $397 |
| New Mexico | 0% (no NM-source) | $0 | None | $347 |
| Delaware | 8.7% (DE-source only) | $300 franchise | $300 flat | $407 |
| Nevada | 0% | $350 (license + list) | Commerce Tax over $4M | $722 |
Source: state secretary-of-state fee schedules and anonymousllc.co pricing, verified July 2026.
An LLC deducts any ordinary and necessary business expense under IRC § 162, cutting income tax and self-employment tax together. The largest deductions are retirement contributions: up to $70,000 into a Solo 401(k) or SEP IRA in 2026.
| Deduction | Statute | 2026 limit | Documentation required |
|---|---|---|---|
| Home office | § 280A | $1,500 (simplified $5/sq-ft) | Square-foot allocation |
| Business mileage | § 274(d) | 70 cents/mile | Contemporaneous mileage log |
| Business meals | § 274(n) | 50% | Receipt + purpose + attendees |
| Section 179 expensing | § 179 | $1,160,000 | Asset placed in service |
| Solo 401(k) | § 401(k) | $70,000 ($77,500 age 50+) | Plan document + records |
| SEP IRA | § 408(k) | $70,000 | Contribution records |
| Contractor payments | § 162 / § 6041A | 1099-NEC at $600+ | W-9 + 1099-NEC |
Source: IRS Publication 535 and IRC § 162, verified July 2026.
Ordinary means common in the industry; necessary means helpful. S-corp shareholders gain extra planning: self-employed health insurance under § 162(l), accountable-plan reimbursements under Treas. Reg. § 1.62-2, and the 20% QBI deduction under § 199A. Recordkeeping discipline matters as much as the deduction: § 274(d) requires contemporaneous receipts and business-purpose notes for travel, meals, and entertainment, not reconstructed afterward.
Filings track classification: a disregarded LLC files Schedule C; a partnership files Form 1065 by March 15; an S-corp files Form 1120-S; a C-corp files Form 1120 by April 15. Non-resident single-member LLCs file Form 5472.
| Classification | Federal form | Due date | Extended date | Late penalty |
|---|---|---|---|---|
| Disregarded (single-member) | Schedule C / E (Form 1040) | April 15 | Oct 15 (Form 4868) | Personal FTF / FTP |
| Partnership | Form 1065 + K-1 | March 15 | Sept 15 (Form 7004) | $245/partner/month (§ 6698) |
| S-corporation | Form 1120-S + K-1 + payroll | March 15 | Sept 15 (Form 7004) | $245/shareholder/month |
| C-corporation | Form 1120 | April 15 | Oct 15 (Form 7004) | 5%/month FTF (§ 6651) |
| Non-resident single-member | Pro-forma 1120 + Form 5472 | April 15 | Oct 15 (Form 7004) | $25,000/form (§ 6038A) |
Source: IRS form instructions (1040, 1065, 1120-S, 1120, 5472), verified July 2026.
LLC owners with self-employment or K-1 income make four estimated payments under IRC § 6654. The safe harbor is 90% of this year's tax or 100% of last year's (110% if AGI exceeded $150,000). The under-payment penalty runs about 8% annualized in 2026.
| Quarter | Period covered | Due date |
|---|---|---|
| Q1 | January - March | April 15 |
| Q2 | April - May | June 15 |
| Q3 | June - August | September 15 |
| Q4 | September - December | January 15 (next year) |
Source: IRS Form 1040-ES and IRC § 6654, verified July 2026.
Two obligations sit next to the return. BOI reporting: under the FinCEN interim final rule of March 21, 2025 (90 FR 13688), domestic US-formed LLCs are exempt from Beneficial Ownership Information reporting, including LLCs owned by non-residents; foreign reporting companies still file within 30 days, with penalties of $591/day under 31 U.S.C. § 5336(h). Dissolution: file a final return marked FINAL, cancel state registration, and report the liquidating distribution - gain recognizes under § 731 (partnerships) or § 331 (S-corps), and non-resident LLCs file a final Form 5472. California requires a final $800 franchise payment; Delaware franchise tax accrues at $300/year until cancellation is accepted.
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