LLC Tax Classification: Disregarded Entity, Partnership, S Corp or C Corp

A limited liability company is a legal form created under state law. The IRS does not tax an LLC as an "LLC." It classifies the LLC as a disregarded entity, a partnership or a corporation, and that classification decides which return you file and how owners pay tax. Many LLC owners are surprised to learn they can change the classification with a simple election. This guide explains the default rules, the elections, the deadlines and the traps.

The four ways an LLC can be taxed

See the guides on S corporations, partnerships and C corporations for the details of each.

Default rules in more detail

Single-member LLC. For income tax, the LLC is ignored. An individual owner reports the activity on Schedule C, E or F and pays self-employment tax on net earnings like a sole proprietor. See Schedule C for sole proprietors. The owner is not an employee of the LLC and cannot put themselves on payroll without a corporate election.

For employment tax on wages paid after 2008, though, the LLC is treated as a separate entity. If it has employees, it uses its own name and EIN on Forms 941 and 940. It also needs its own EIN for certain excise tax forms.

Multi-member LLC. The LLC files Form 1065 and gives each member a Schedule K-1. Members are not employees. Payments to members for services are guaranteed payments or distributions.

Changes in membership. Adding or losing a member can change the default classification. A single-member LLC that admits a second member becomes a partnership, and a partnership that ends up with one member becomes a disregarded entity. Those changes can create deemed transactions and may require a new EIN, because the Form SS-4 instructions list a change in type of organization as a reason for a new one. Talk to us before a member joins or leaves, including a transfer to a spouse.

Electing corporate status

Form 8832. The election can take effect no more than 75 days before the filing date and no more than 12 months after. After an election to change classification, the LLC generally cannot change again by election for 60 months. An election effective on the date of formation is not counted as a change. Late-election relief under Rev. Proc. 2009-41 is available in limited cases when filed within 3 years and 75 days of the intended effective date. A copy of Form 8832 is attached to the entity's return for the election year, or to the owners' returns if the entity files none. Missing the attachment does not cancel the election, but penalties can apply.

Form 2553. An eligible LLC that files Form 2553 on time and meets all the S corporation requirements is treated as having elected corporation status, so Form 8832 is not needed first. See the deadlines in S corporation taxes.

Example (hypothetical): Priya owns a single-member LLC that earned $90,000 in 2025. It is a disregarded entity, so she reports the profit on Schedule C and pays self-employment tax. If she wants S status starting January 1, 2027, she can file Form 2553 any time in 2026 or by March 15, 2027, provided the LLC and its owner meet the requirements. Once effective, the LLC would run payroll for her and file Form 1120-S.

EINs, state filings and Illinois

An EIN is free from the IRS, which warns against websites that charge for one. The online application requires the responsible party to have a Social Security number, ITIN or EIN. Form your LLC with the state first so the application matches the state record.

An Illinois LLC is formed with the Illinois Secretary of State. Illinois income tax filings generally follow the federal classification: for example, an LLC taxed as a partnership files Form IL-1065, and an LLC taxed as an S corporation files Form IL-1120-ST. See our guides on partnerships and S corporations for the Illinois details.

Common mistakes

• Assuming an LLC is automatically taxed like an S corporation
• Paying a single-member owner a "salary" without a corporate election
• Electing S status without setting up payroll
• Missing the effective-date window on Form 8832
• Adding a family member without checking the tax effect
• Mixing personal and business funds, which can weaken liability protection

How we can help

We can compare classifications for your numbers, prepare Form 8832 or Form 2553, file the returns that follow and set up payroll if you elect corporate treatment. See business formation and entity selection, business tax preparation and LLC, S corporation or C corporation.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.