The IRS’ default federal income tax method for: (i) a single member LLC is sole proprietorship/disregarded entity, and (ii) a multi-member LLC is partnership. There are two other tax methods that can potentially apply to LLCs. These two methods are C corporation tax and S corporation tax.
Subject to eligibility requirements, your LLC may file an IRS Form 2553 and elect to be taxed under Subchapter S of the Internal Revenue Code, aka an “S corporation” tax method. Your LLC could also file an IRS Form 8832 and elect to be taxed under Subchapter C of the Internal Revenue Code, aka a “C corporation” tax method.
To learn more about how LLCs are taxed read the following detailed articles:
- KEYTLaw LLC attorney Richard C. Keyt’s article called “How are LLCs Taxed?” Ricky was a CPA before he became an LLC and business law attorney. This article explains in detail the four ways an LLC can be taxed.
- “Re-Thinking the LLC” This is an excellent article that explains when and why an LLC might want to elect to be taxed as an S corp in light of employment tax and Obamacare issues. The authors make the following statement that we agree with “it is strongly recommended that practitioners consult a Certified Public Accountant (CPA).”
Note: If you want your LLC to be taxed as an S corp or a C corp from its date of formation, the LLC must file the proper form on or before 75 days after its formation date.