Lesson 12 of 15
LLC taxes and tax elections
An LLC has no tax classification of its own. The IRS applies a default and lets you elect a different one.
Default federal treatment
- Single-member LLC: disregarded, reported on the owner's personal return
- Multi-member LLC: taxed as a partnership, filing Form 1065 with Schedule K-1 to each member
- Either can elect corporate taxation, and eligible companies can then elect S corporation treatment
Self-employment tax
Under the default treatment, active owners generally pay self-employment tax on their share of business profit. This is what drives some profitable owner-operated businesses to look at the S corporation election once profits are consistently high.
State level
States add their own layer: income tax, franchise or minimum annual tax, gross receipts tax, and sales tax on qualifying sales. These apply regardless of your federal election, so check the rules for every state you operate in.
Tax treatment interacts with your personal situation. This course is educational, not individual tax advice. Speak to a tax professional before making an election.
Frequently asked questions
Does an LLC pay federal corporate tax?
Only if it elects corporate taxation. By default profit is reported on the owners' returns.
When is the S corporation election worth it?
Typically once profit reliably exceeds a reasonable owner salary by enough to cover payroll and compliance cost. Our election course covers this.
Prefer to have someone handle the filing?
You can file directly with the state using the steps above. If you would rather have Gullia Filing prepare and file your formation documents, run the name check and act as your registered agent, we handle the process end to end.