A single-member LLC can elect to be taxed as an S-corporation or a C-corporation by filing a short form with the IRS, without changing anything about the LLC under state law. The S-corp election is the one most owners consider: profits still pass through to your personal return, but only the salary you pay yourself is subject to Social Security and Medicare taxes. The C-corp election makes the LLC a separate taxpayer at a flat 21% federal rate, which usually costs more than it saves once profits are distributed. Choosing between the single-member LLC S-corp or C-corp election comes down to how much the business earns, whether you plan to take the money out, and whether you’re willing to run payroll and file a corporate return every year.
The Default You’d Be Changing
Without any election, the IRS treats a domestic LLC with one owner as a “disregarded entity” under Treasury Regulation Section 301.7701-3.1eCFR. 26 CFR 301.7701-3 – Classification of Certain Business Entities The LLC is invisible for federal income tax. Income and expenses land on your Form 1040, Schedule C, and you pay self-employment tax of 15.3% on the net profit up to the Social Security wage base of $184,500 in 2026.2Social Security Administration. Contribution and Benefit Base The same regulation lets you override this default and be treated as a C-corp or S-corp instead.3Internal Revenue Service. Single Member Limited Liability Companies Your articles of organization, operating agreement, and state filings are untouched. Only the federal tax treatment shifts.
The S-Corporation Election
With an S-corp election, the LLC pays no federal income tax of its own. Profits pass through to your individual return, much like the disregarded-entity default.4Internal Revenue Service. S Corporations The difference is how payroll taxes work. You pay yourself a salary, and only that salary carries the 15.3% Social Security and Medicare load. Anything you take out beyond the salary is a distribution, which is subject to income tax but not payroll tax.
An example makes the math concrete. If your LLC nets $150,000 and you pay yourself an $80,000 salary, payroll taxes apply only to the $80,000. The remaining $70,000 in distributions escapes the 15.3% hit, saving you roughly $10,700 for the year.
The Reasonable Salary Rule
The IRS requires your salary to be “reasonable” for the work you actually do. Courts have held that the test is whether the payments genuinely reflect compensation for services, not whether the owner intended to limit wages.5Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers Set your salary suspiciously low to inflate distributions and the IRS can reclassify the distributions as wages and assess back taxes, interest, and penalties. The factors that weigh in include your training and experience, the time you devote to the business, what comparable businesses pay for similar roles, and the company’s dividend history.
Who Qualifies
Not every LLC qualifies. Under 26 U.S.C. § 1361 the entity must be domestic, have no more than 100 shareholders, have only one class of stock, and have no nonresident-alien shareholders or most types of entity shareholders (with narrow exceptions for certain trusts and tax-exempt organizations).6Office of the Law Revision Counsel. 26 USC 1361 – S Corporation Defined For most single-member LLCs the only real hurdle is the citizenship rule. If you’re not a U.S. citizen or permanent resident, S-corp status is off the table.
Form 2553 and the Deadline
You elect S-corp status by filing Form 2553, Election by a Small Business Corporation.7Internal Revenue Service. About Form 2553, Election by a Small Business Corporation When an LLC files Form 2553, it is automatically treated as having elected corporate classification, so you do not also need to file Form 8832.8Internal Revenue Service. Entities 3 One form covers both steps.
The deadline is strict. Form 2553 must be filed no more than two months and 15 days after the beginning of the tax year the election takes effect, or at any point during the preceding tax year.9Internal Revenue Service. Instructions for Form 2553 For a calendar-year business wanting S-corp status effective January 1, 2026, the form must be filed by March 17, 2026 (March 15 falls on a Sunday), or at any point during 2025. Before you file, have the LLC’s exact legal name from your state-filed articles of organization, its EIN, your Social Security number, and a specific effective date. If you don’t have an EIN yet, apply for one online first.10Internal Revenue Service. Get an Employer Identification Number
The C-Corporation Election
Electing C-corp status turns the LLC into a separate taxpayer. The entity files Form 1120 and pays a flat 21% federal income tax on its profits.11Office of the Law Revision Counsel. 26 USC 11 – Tax Imposed You make the election on Form 8832, Entity Classification Election.12Internal Revenue Service. About Form 8832, Entity Classification Election
The problem is double taxation. The LLC pays corporate tax on its profits, and when it distributes those profits to you as dividends, you pay individual income tax again at rates up to 20%, plus a potential 3.8% net investment income tax. A dollar of profit can shrink to roughly 55 to 60 cents by the time it reaches you. That math sinks the C-corp election for most single-member LLCs unless the owner plans to retain and reinvest earnings rather than take them home, or the business has a specific reason to be a C-corp such as attracting outside investors or issuing stock options.
The effective date on Form 8832 can reach back no more than 75 days before the filing date and no more than 12 months into the future.13Internal Revenue Service. Form 8832 – Entity Classification Election Pick a date outside that window and the IRS adjusts it to the nearest boundary.
Which Election Actually Pays Off
The S-corp election starts making sense once the LLC’s net income is high enough that payroll tax savings on distributions outweigh the added costs of running payroll, filing a corporate return, and defending a reasonable salary. For most owners that tipping point falls somewhere around $50,000 to $60,000 in annual net profit, though the exact number depends on what a reasonable salary looks like in your industry. Below that range, the disregarded-entity default is usually cheaper and simpler.
C-corp elections stay rare for single-member LLCs. They occasionally fit a business that plans to retain earnings and reinvest at the 21% corporate rate rather than paying the owner’s higher individual rate, or one preparing to raise venture capital or issue stock.
If You Missed the Deadline
The IRS offers automatic late-election relief under Revenue Procedure 2013-30 when four conditions are met.14Internal Revenue Service. Late Election Relief
- The entity intended to be classified as an S-corporation as of the requested effective date.
- You have reasonable cause for the late filing.
- Both the entity and the owner have reported income consistently with S-corp status for every year since the intended effective date.
- Less than three years and 75 days have passed since the intended effective date.
If the LLC also needs a late corporate classification election on Form 8832 to go along with the late S-corp election, both can be handled under the same procedure, provided every federal return since the intended date was filed as an S-corp. Owners who don’t qualify for automatic relief are left with a private letter ruling, which is slow and expensive.
What Changes After You Elect
Corporate tax treatment creates compliance obligations the disregarded-entity default doesn’t have, and this is where owners often underestimate the switch.
Payroll
Under either election you become an employee of your own LLC. You have to set up payroll, withhold federal income tax and FICA from your paychecks, pay the employer’s share of FICA, and file Form 941 quarterly. Federal unemployment tax (FUTA) also applies to the first $7,000 of wages.15Internal Revenue Service. LLC Filing as a Corporation or Partnership Most owners hand this off to a payroll service, which typically runs $30 to $80 per month.
Annual Returns
A C-corp files Form 1120, due on the 15th day of the fourth month after year-end (April 15 for calendar-year filers).16Internal Revenue Service. Publication 509, Tax Calendars An S-corp files Form 1120-S, due on the 15th day of the third month (March 15 for calendar-year filers, shifted to March 16 in 2026 because the 15th is a Sunday). Both can request an automatic six-month extension on Form 7004, but an extension only postpones filing, not payment.
An S-corp must also issue a Schedule K-1 to the owner by the Form 1120-S due date, reporting your share of income, deductions, and credits. You then use the K-1 to complete your personal return. That’s an extra layer of paperwork and usually a higher tax preparation bill than the Schedule C you’d file as a disregarded entity.
Getting Out of an S-Corp Election
If S-corp status stops making financial sense, you can revoke it by filing a statement with the IRS service center where you originally filed Form 2553. The statement has to say the corporation is revoking its election under Section 1362(a) and list the number of shares outstanding.17Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination For a single-member LLC the consent requirement (more than 50% of shares) is automatic because you’re the only owner.
Timing controls the effective date. Revoke on or before the 15th day of the third month of the tax year and the revocation takes effect retroactively to the first day of that year. Revoke after that date without specifying a date and it takes effect the following January 1. You can also name any future date on or after the day you file.
One Thing the Election Doesn’t Change
Your liability protection is a function of being an LLC, not of how you’re taxed. Electing S-corp or C-corp status does not strengthen or weaken the separation between your personal assets and business debts. Courts respect that separation only if you treat the LLC as a genuinely separate entity: keep separate bank accounts, sign contracts in the LLC’s name, avoid mixing personal and business funds, and maintain basic records of business decisions. Having an operating agreement, even as the sole member, helps show that the business operates as a distinct entity.18U.S. Small Business Administration. Basic Information About Operating Agreements