An LLC has four possible federal tax classifications: disregarded entity, partnership, C-corporation, or S-corporation. The first two are defaults the IRS assigns automatically based on how many owners you have. The other two are LLC tax election options you choose by filing a form. Each choice changes how profits are taxed, how much self-employment tax you owe, and what returns the business files.
The Four Classifications
When you form an LLC and file nothing else with the IRS, the classification is set for you. A single-member LLC becomes a disregarded entity, meaning the business files no separate federal return and everything lands on the owner’s Schedule C.1Internal Revenue Service. Single Member Limited Liability Companies An LLC with two or more members defaults to partnership treatment: the company files an informational Form 1065, but the members pay the tax on their individual returns.2Internal Revenue Service. LLC Filing as a Corporation or Partnership
Under either default, the owner’s share of profits is subject to self-employment tax at 15.3 percent of net earnings — 12.4 percent for Social Security on income up to $184,500 in 2026, plus 2.9 percent for Medicare with no cap.3Social Security Administration. Contribution and Benefit Base Those default classifications stay in place indefinitely unless the owners file to change them.
The two elective options are C-corporation and S-corporation treatment. Both require an affirmative filing. Neither is available by accident.
Electing C-Corporation Treatment
An LLC that files Form 8832 to be taxed as a C-corporation pays federal income tax at a flat 21 percent on its earnings and files Form 1120. Profits stop flowing through to the owners’ personal returns until they are actually distributed.2Internal Revenue Service. LLC Filing as a Corporation or Partnership
The catch is double taxation. The 21 percent hits at the corporate level. When profits are paid out as dividends, the owners are taxed again at 0, 15, or 20 percent, depending on income. High earners can owe an additional 3.8 percent Net Investment Income Tax on top of that.4Internal Revenue Service. Topic No. 559, Net Investment Income Tax A dollar of profit that reaches an owner’s pocket can effectively lose 40 percent or more.
C-corporation status generally fits businesses that plan to reinvest earnings rather than distribute them, or that need a conventional corporate structure to attract outside investors. If regular distributions are the plan, the second layer of tax usually outweighs the benefits.
Electing S-Corporation Treatment
The S-corporation election is the more common choice because it keeps pass-through taxation and can reduce self-employment taxes. The company itself pays no federal income tax; profits flow to the owners’ personal returns.5Internal Revenue Service. S Corporations
The savings come from how owner compensation is split. Under default LLC treatment, your entire share of profits is subject to the 15.3 percent self-employment tax. Under an S-corporation, only the salary you pay yourself runs through payroll taxes. Remaining profits distributed to you are not subject to Social Security or Medicare tax.
The salary has to be reasonable for the work you actually do. Courts have consistently held that owners who provide more than minor services must receive genuine compensation before taking distributions.6Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers Setting the salary artificially low to shrink the payroll tax base is one of the most common S-corporation audit triggers.
Pass-through entities also qualify for the Section 199A qualified business income deduction, which lets eligible owners deduct up to 20 percent of qualified business income. The deduction was originally set to expire after 2025 but was made permanent by legislation signed in July 2025. It applies to income from S-corporations, partnerships, and sole proprietorships, but not to C-corporation income.7Internal Revenue Service. Qualified Business Income Deduction
Who Qualifies for S-Corporation Status
The Internal Revenue Code limits which entities can be S-corporations. Confirm each of these before you file:
- No more than 100 shareholders. Members of the same family and their estates count as a single shareholder.
- All shareholders must be individuals, certain qualifying trusts, or Section 501(c)(3) tax-exempt organizations. Corporations and partnerships cannot be shareholders.
- Every individual shareholder must be a U.S. citizen or resident. A nonresident alien disqualifies the company.
- Only one class of stock, meaning identical rights to distributions and liquidation proceeds. Differences in voting rights alone do not create a second class.
Violating any of these requirements — at the time of the election or later — automatically terminates S-corporation status. An LLC that has a corporate partner, for instance, cannot elect S-corporation treatment at all.
How to File the Election
Which form you file depends on the classification you want. For C-corporation treatment, file Form 8832, Entity Classification Election.9Internal Revenue Service. About Form 8832, Entity Classification Election For S-corporation treatment, file Form 2553, Election by a Small Business Corporation.10Internal Revenue Service. About Form 2553, Election by a Small Business Corporation
An LLC electing S-corporation status does not need to file Form 8832 first. A timely Form 2553 is treated as an election to be classified as a corporation and then as an S-corporation in one step.11Internal Revenue Service. Entities 3
Both forms require the company’s exact legal name as registered with the state, its Employer Identification Number, current mailing address, and date of formation.12Internal Revenue Service. Employer Identification Number You specify the requested effective date and the current classification, and every member or authorized officer signs. For Form 2553, everyone who was a shareholder at any point between the requested effective date and the filing date must consent.13Internal Revenue Service. Instructions for Form 2553
Neither form goes through an online portal. Both are mailed or faxed to one of two IRS service centers, split geographically between Kansas City, Missouri and Ogden, Utah. The current addresses are listed on the IRS’s “Where to File” pages for each form.14Internal Revenue Service. Where to File Your Taxes for Form 255315Internal Revenue Service. Where to File Your Taxes for Form 8832 Attach a copy of Form 8832 to the company’s federal return for the year the election takes effect.
Deadlines
The two forms use different windows, and missing them is the most common reason elections fail.
Form 2553. To take effect for the current tax year, Form 2553 must be filed no later than two months and 15 days after the start of that tax year. For a calendar-year LLC, that is March 15. You can also file at any point during the prior tax year for a future effective date. A newly formed LLC has two months and 15 days from the date it first had assets or began business.13Internal Revenue Service. Instructions for Form 2553
Form 8832. The election cannot take effect more than 75 days before the form is filed and cannot take effect more than 12 months after the filing date.16Internal Revenue Service. Instructions for Form 8832 – Entity Classification Election You can backdate up to 75 days or set the effective date up to a year out. Outside those boundaries, the election is invalid for the period you wanted.
If Form 8832 is accepted, the IRS mails a formal notice of acceptance, generally within 60 days. Keep it permanently as proof of classification.
If You Missed the Deadline
A late election is not necessarily fatal. The IRS runs two automatic relief programs that avoid the cost of a private letter ruling, provided you act within a defined window.
Late S-corporation elections. Under Revenue Procedure 2013-30, the IRS grants automatic relief if the company intended to be an S-corporation as of the requested effective date, the only defect is the late filing, there is reasonable cause, the company acted to correct the mistake once discovered, and the filing occurs within three years and 75 days of the intended effective date. File a completed Form 2553 with “FILED PURSUANT TO REV. PROC. 2013-30” at the top, and include a signed statement explaining the delay. Every shareholder during the period between the intended effective date and the filing must sign and confirm they reported income consistently with S-corporation treatment.17Internal Revenue Service. Revenue Procedure 2013-30
Late C-corporation elections. Revenue Procedure 2009-41 works the same way for Form 8832: the failure must be solely the late filing, all returns must have been filed consistently with the intended classification, there must be reasonable cause, and the request must come within three years and 75 days of the intended effective date. Complete Part II of Form 8832 to explain the delay.16Internal Revenue Service. Instructions for Form 8832 – Entity Classification Election
Outside the three-year-and-75-day window, the only remaining path is a private letter ruling, which carries a user fee that typically runs several thousand dollars. Catching the mistake earlier keeps you inside the free automatic relief.
Reversing an Election
Neither election is permanent. To revoke an S-corporation election, submit a written statement to the same IRS service center where the company files its annual return, with consent from shareholders holding more than half of the outstanding shares. To take effect on the first day of the current tax year, the statement must be filed by the 15th day of the third month — March 15 for calendar-year filers. For a later effective date, the IRS must receive the statement by that date.18Internal Revenue Service. Revoking a Subchapter S Election
An entity that elected C-corporation treatment through Form 8832 can file a new Form 8832 to revert. There is a lockout, though: the IRS generally will not allow a second entity classification change within 60 months of the first, unless the IRS consents or more than half of the ownership interests transferred to new owners.16Internal Revenue Service. Instructions for Form 8832 – Entity Classification Election
States Don’t Automatically Follow
A federal election does not decide how your state taxes the LLC. Most states honor a federal S-corporation election without a separate filing, but some require their own S-corporation form, and a few do not recognize S-corporation status at all. In those states, an LLC that is an S-corporation federally may be taxed as a C-corporation for state purposes.
Many states also charge annual fees, franchise taxes, or annual report fees on LLCs regardless of federal classification. Amounts range from nothing to several hundred dollars, with a few states charging $800 or more. Check with your state’s secretary of state or revenue department before locking in a federal election, because the state layer can change which option actually saves money.