IRS LLC Filing Requirements

By Larissa Bodniowycz, J.D.

IRS LLC Filing Requirements

By Larissa Bodniowycz, J.D.

By default, the Internal Revenue Service (IRS) does not recognize limited liability companies (LLCs) as separate entities for tax purposes. Instead, your business must choose a tax classification. An LLC can choose to be taxed as a disregarded entity, a partnership, an S corporation, or a C corporation.

Businessman signing documents

These businesses typically elect a form of pass-through taxation in which the company itself is not subject to direct income tax. The income instead passes through to the owners, called members. These individuals then become responsible for paying federal and state income taxes on their shares of the company's income. Taxation as a disregarded entity and taxation as a partnership are both pass-through forms of taxation.

Disregarded Entity Tax Status

The IRS generally treats an LLC that has only one member as a disregarded entity, meaning the IRS disregards it for tax purposes. It is essentially taxed as a sole proprietorship. The single person, as a sole proprietor, pays federal taxes on the business income.

There are no filing requirements in this instance. All of the income passes through to the single member, and they must report it on their U.S. Individual Income Tax Return (Form 1040).

Partnership Tax Status

LLCs that have more than one member are generally treated as partnerships, which also offer pass-through taxation. They must report their share of the income on their individual tax returns. Each owner's share of the business income depends on how the company divides its profits.

Even though it does not need to file a tax return, it must submit a U.S. Return of Partnership Income (Form 1065), an informational tax return that reports income, deductions, gains, and losses, by March 15 of each year. It must also furnish copies of a Partner's Share of Income, Deductions, Credits, etc. (Form 1065, Schedule K-1) to each member who will then pay taxes on their share of income on their individual income tax return.

C or S Corporation Tax Status

Alternatively, you may elect to have your LLC treated as a traditional corporation, or C corporation, for tax purposes. If you choose this option, then the company itself must file its own tax returns. The owners can file Entity Classification Election (Form 8832) with the IRS. They must file a U.S. Corporation Income Tax Return (Form 1120) by April 15. The income is taxed according to applicable corporate tax rates. Additionally, members taxed as a C corporation pay taxes with their individual tax returns on any income they received from the business that year.

A qualifying LLC may elect to be taxed as an S corporation. To qualify for S corporation status, a business must be a domestic entity, have only eligible shareholders, have no more than 100 shareholders, and have only one class of stock.

With S corporation taxation, taxable income passes through to the owners or members. S corps. themselves do not need to pay income tax, but each individual must pay taxes on their share of the income. You can elect S corporation status by filing an Entity Classification Election (Form 8832). The LLC itself is not taxed, except for some forms of passive income. You must file a U.S. Income Tax Return for an S Corporation (Form 1120S), an informational return reporting income, deductions, profits, losses, and tax credits, by March 15 of each year.

Self-Employment Taxes

An LLC's members are self-employed business owners and typically must pay self-employment taxes if the company is treated as a disregarded entity, partnership, or S corporation. The regulations are slightly complicated in this area, but any owner who actively helps manage or works for the company generally must pay self-employment taxes on their share of the profits when submitting their individual tax return.

If possible, you should decide how you want the IRS to tax your LLC before you form it, as the tax status of your business guides other decisions regarding your operations.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.