How LLCs Are Taxed: The Four Classifications (2026)

The IRS does not tax an LLC as an LLC, because no such federal tax category exists. An LLC is a business structure created under state law, and the IRS assigns it a tax classification based on how many owners it has and which elections it files. There are exactly four classifications: disregarded entity, partnership, S-corporation, and C-corporation.

Two of those are automatic. A single-member LLC defaults to a disregarded entity, and a multi-member LLC defaults to a partnership. The other two require a filing: you elect S-corporation status on Form 2553 or C-corporation status on Form 8832. Every LLC lands in one of these four buckets, and your bucket determines every form you file and every dollar of tax you owe.

A single-member LLC is a disregarded entity by default, which means the IRS ignores it and taxes the owner directly. You report the LLC's income and expenses on Schedule C, attached to your personal Form 1040. The LLC files no separate federal income tax return.

Net profit flows onto your personal return and is subject to both income tax and self-employment tax, which covers Social Security and Medicare. The liability shield of the LLC stays intact; only the tax layer disappears. This is the simplest classification and the right default for most solo founders. We cover it in depth on our single-member LLC taxes guide.

A multi-member LLC is taxed as a partnership by default. The LLC itself files an informational return, Form 1065, but pays no federal income tax at the entity level. Instead it issues a Schedule K-1 to each member, reporting that member's share of profit or loss.

Each member then carries the K-1 figures onto their personal Form 1040 and pays income tax and self-employment tax on their share. The allocation follows the operating agreement, which is why a clear agreement matters for multi-owner LLCs. Full detail lives on our multi-member LLC taxes page.

Pass-through taxation means the LLC pays no entity-level federal income tax; the profit passes straight through to the owners, who pay tax on it once. Both default classifications, disregarded entity and partnership, are pass-through. This is the feature that makes the LLC popular: there is a single layer of tax rather than two.

The contrast is the C-corporation, which is not a pass-through. A C-corp pays tax at the entity level first, and its owners pay again on any dividends they receive. Understanding pass-through is the key to choosing an election, because the whole point of a corporate election is to trade the pass-through default for a different outcome.

An LLC should consider an S-corp election when its profit comfortably exceeds a reasonable salary for the owner's work. You elect S-corp status by filing Form 2553, and the LLC then files Form 1120-S and issues K-1s. The S-corp stays a pass-through, so profit is still taxed once at the owner level.

The advantage is self-employment tax. As an S-corp owner you pay yourself a reasonable salary subject to payroll tax, and remaining profit is distributed without self-employment tax. That split can lower your total tax once profit is high enough to justify running payroll and filing a separate return. Our S-corp election guide walks through the timing and the reasonable-salary rule.

A C-corp election makes sense when you plan to raise venture capital, retain earnings inside the company, or offer equity to outside investors. You elect C-corp status by filing Form 8832, and the LLC then files Form 1120 and pays the flat 21% federal corporate income tax on its profit.

The trade-off is double taxation. The company pays 21% on profit, and shareholders pay again on any dividends distributed to them. For most small operating businesses that distribute their earnings, this is worse than a pass-through. It becomes attractive mainly for high-growth startups that reinvest profit and court institutional investors who expect C-corp structure.

You change an LLC's tax classification by filing the election form for the status you want, and the change takes effect on the date the election names. File Form 2553 to become an S corporation or Form 8832 to become a C corporation. No new legal entity is created, so the LLC keeps its name, bank accounts, and liability shield.

Timing rules bind each election. An S-corp election on Form 2553 must reach the IRS within 2 months and 15 days of the start of the tax year you want it to cover, with late-election relief available under Rev. Proc. 2013-30. A C-corp election on Form 8832 sets its own effective date inside a 75-day window around filing. The IRS also caps how fast you can switch again: after a voluntary change, a five-year wait applies before you can elect a different status without special permission.

State taxes stack on top of the federal classification and run on their own rules. Your federal choice of disregarded entity, partnership, S-corp, or C-corp sets the federal return, but each state where the LLC operates decides its own income tax, franchise tax, and annual filing separately.

The four anonymous-LLC states show the range. Wyoming charges no state income tax and runs a $60 minimum annual report license tax due in the formation-anniversary month. New Mexico requires no annual report and no annual fee. Delaware levies a $300 flat annual franchise tax due June 1. Nevada charges no income tax but requires an annual list plus a state business license running about $350 per year. None of these state duties change your federal classification; they are a second, parallel layer you plan for wherever the LLC has nexus.

Read the table top to bottom: the two defaults are pass-through and cost nothing to obtain, while the two elections change how profit is split and, in the C-corp case, add a second layer of tax.

A foreign-owned single-member LLC is still a disregarded entity, but it carries an extra reporting duty. Even when it owes no US income tax, it must file Form 5472 together with a pro-forma Form 1120 to disclose transactions between the LLC and its foreign owner. This filing is mandatory, and the penalty for missing it is steep.

The tax classification itself does not change because the owner is foreign. A non-resident who owns a US LLC uses the same four-classification framework as anyone else. What changes is the compliance layer: Form 5472 applies to foreign-owned disregarded entities regardless of whether the LLC generated any taxable US income.