How to Make a Business Classification Election for an LLC

Once an LC is created, you have three options:

  1. Do nothing and be taxed according to the default tax treatment that applies to your LLC. You're not required to make an entity classification election.
  2. Elect C corporation tax treatment by filing Form 8832.
  3. Elect S corporation treatment by filing Form 2553. The IRS does not require Form 8832 to be filed if an an LLC elects S corporation tax treatment. Only Form 2553 need be filed.

Default Classification Rule

The default classification for federal tax purposes refers to how the LLC will automatically be taxed if no entity election is made to be taxed as a C or S corporation.

If no entity classification election is made, the following default tax treatment will apply:

  • Single-Member LLC:
    • A default classification of sole proprietorship will apply to a single-member LLC. The LLC owner files Schedule C to report business income and expenses.
  • Multiple-Member LLC:
    • A default classification of partnership will apply to a multiple member LLC (two or more members). The LLC files Form 1065. LLC members receive Schedule K-1 at year end and report the items shown on Schedule K-1 on their individual income tax return.

The IRS only recognizes the following business categories for federal Income tax purposes:

  • Sole proprietorship
  • Partnership
  • Corporation

Although an LLC is a legal form of business, subject to the laws of the state of formation, the IRS does not recognize an LLC as a business category for federal income tax purposes. There is no federal income tax forms specifically designed for LLCs.

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