LLC Tax Classifications: Sole Proprietorship, Partnership, S Corp and C Corp

An LLC can be taxed in several ways, depending on how it’s structured and the number of members it has. The different tax classifications are:

1.Sole proprietorship or Partnership

Single member LLC is default taxed as Sole Proprietorship, multi member LLC is default taxed as Partnership. Both Sole proprietorship and Partnership are pass-through taxation entities, the LLC income is passed to the owner’s personal income return.

The owner pay personal income tax and self-employment tax(15.3%) on all earned income.

2.S Corp

LLC(single or multi member) can choose to be taxed as S Corp by filing form 2553 to IRS. S Corp is also pass-through taxation entity.

S Corp require you pay yourself a salary and pay employment tax on the salary instead of all the profit. Employment tax is total 15.3%, employer and employee each paying 7.65%.

The distributions you get from the s corp is passed to your personal income, which are subject to personal income tax.

I typically only recommend S Corp when profits exceed 100k due to the administrative burden, QBI deduction, etc.

3.C Corp

LLC(single or multi member) can also choose to be taxed as a C Corp by filing form 8832 to IRS, which is a separate taxable entity. This structure is typically used by larger businesses and can result in double taxation of the company’s income — taxes at the corporate level and taxes at the owner level.

At last, I suggest using northwestregisteredagent.com to form LLC, cost $39 + state fee. They have more than 20 years experience in business formation and provide free business address.