Can an LLC File as a C Corp?

By Jeff Franco J.D./M.A./M.B.A.

Once you form a limited liability company, or LLC, you can’t treat your business as a C corp unless you create a legal corporate entity for it. However, if you only want the LLC to file as a C corporation for tax purposes, the IRS allows for it, but the LLC must commit to comply with every corporate income tax rule for a minimum number of years.

Corporate Tax for LLCs

An unavoidable consequence of filing tax returns for the LLC as a C corporation is double taxation. This is because the IRS treats a corporation as a separate taxpayer – meaning the LLC will be responsible for paying all income tax on its earnings. The second tax occurs when the LLC makes profit distributions to the owners, known as members. These distributions are subject to the same tax treatment as corporate dividend payments -- which are taxable to shareholders on their respective tax return. These distributions aren’t deductible to the LLC on the corporate return and are paid from after-tax earnings. In contrast, LLCs that don’t elect corporate treatment are subject to partnership or sole proprietorship taxation – neither of which results in double taxation.

Making the Election

If you decide that corporate tax treatment is beneficial, the LLC can make an election for C corporation tax treatment by filing Form 8832 with the IRS. Form 8832 requires either unanimous consent of all LLC members or the consent of an LLC officer or manager with proper authority. When making the election, you should keep in mind that the earliest date you can begin treating the LLC as a C corporation for tax purposes is 75 days before the date Form 8832 is filed. Once the election is made, the LLC is subject to corporate taxation for a minimum of five years before it can make a new election.

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Corporate Tax Returns

Electing for C corporation tax treatment means the LLC will begin filing annual tax returns on Form 1120. Form 1120 calculates the overall taxable income of the LLC without regard to members or their respective ownership interests. Moreover, the taxable LLC income you calculate on Form 1120 is subject to special corporate income tax rates, which in some years can be as high as 38 percent. One other change relevant to C corporation taxation is that the return and tax payment is due on the 15th day of the third month following the close of the LLC’s tax year, which is commonly March 15th since many businesses use the calendar year for tax purposes.

Changing Legal Entity

If you prefer to change the legal status of the entity from an LLC to a corporation – which for tax purposes the IRS will consider as a C corporation by default -- you need to follow the procedures in the state where you want to create the new corporation. In Delaware, for example, you can accomplish the conversion by filing a certificate of conversion, a certificate of incorporation and paying the appropriate filing fees. You can also convert your LLC to a corporation via an online document preparation site such as LegalZoom, which can prepare and file all documents on behalf of the LLC.

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Deducting a Salary for a Single-Owner LLC

References

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How to Change an LLC Filing as an S Corp to a Sole Proprietor

A limited liability company, or LLC, is a business structure defined by state law which protects its members from personal liability for company activity and involves a less complicated operational structure than a corporation. The IRS requires an LLC to elect tax treatment as an S corporation, traditional corporation, partnership or sole proprietorship. If you originally elected S corporation tax treatment and decide to change that election to sole proprietorship, you must withdraw your original election and submit a new one. Sole proprietorship election for an LLC is reserved for companies with only one owner-member.

Definition of a C-Corporation

Classification of a corporate entity as a C corporation rests entirely on whether it’s subject to the income tax rules in subchapter C of the Internal Revenue Code, or IRC. The C corporation designation solely relates to income tax, so states make no distinction when you create the entity. However, many state taxing authorities recognize the designation for state income tax purposes.

Can You File an LLC With Personal Taxes?

The Internal Revenue Service has yet to create a tax return for LLCs. The income and loss that a LLC generates is subject to federal taxation; however, the government requires you to utilize a corporate, partnership or personal income tax return to report the LLC’s earnings and losses. If the LLC receives corporate treatment for tax purposes, LLC members are precluded from reporting the income on a personal tax return.

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