A pass-through tax entity (an LLC taxed as Sole Proprietorship, Partnership, or S-Corporation) is a tax-reporting entity, not a tax-paying entity.
On the other hand, a C-Corporation is a tax-reporting entity and a tax-paying entity.
Tax-reporting means information is submitted to the IRS, but not money. Tax-paying means money is sent to the IRS.
LLC taxed as Sole Proprietorship (Single-Member LLC)
This is not a tax-reporting entity or a tax-paying entity (it’s a pass-through entity).
The owner is responsible for the tax-reporting and this takes place on their Schedule C.
The owner is also responsible for the tax-paying; they send money to the IRS along with their personal tax return.
LLC taxed as Partnership (Multi-Member LLC)
This is a tax-reporting entity, but not a tax-paying entity (it’s a pass-through entity).
The LLC is responsible for the tax-reporting and this takes place via Form 1065 (Partnership return).
The owners are responsible for the tax-paying; each owner sends money to the IRS along with their personal tax return (and their K-1 attached).
LLC taxed as S-Corp
Also known as: LLC taxed as S-Corporation or S-Corporation tax election.
This is a tax-reporting entity, but not a tax-paying entity (it’s a pass-through entity).
Like the Partnership above, the LLC is responsible for the tax-reporting and this takes place via Form 1120S (S-Corporation return).
The owners are responsible for the tax-paying; each owner sends money to the IRS along with their personal tax return (and they also attach their K-1).
Note: Both Single-Member LLCs and Multi-Member LLCs can choose to be taxed as an S-Corp.
LLC taxed as C-Corp
Also known as: LLC taxed as C-Corporation or C-Corporation tax election.
This is a tax-reporting entity and a tax-paying entity (it’s not a pass-through entity).
The LLC is responsible for the tax-reporting and the LLC is responsible for the tax-paying as well. These both take place via Form 1120 (Corporation return).
Additionally, the owners are also responsible for tax-paying and this takes place on their personal tax return (they attach their 1099-DIV).
Both the LLC and its owners need to send money to the IRS if taxes are owed.
This is referred to as double-taxation since the LLC itself is tax-paying on its profits and the owners are tax-paying on their distributed share of the profits.
Note: Both Single-Member LLCs and Multi-Member LLCs can choose to be taxed as a C-Corp.
We know this information can be a bit tricky to follow, so we included a quick reference chart below to help you see the differences:
Type of Entity | Tax-Reporting | Tax-Paying |
---|---|---|
LLC taxed as Sole Proprietorship (Single-Member LLC) | ||
LLC taxed as Partnership (Multi-Member LLC) | √ | |
LLC taxed as S-Corporation | √ | |
LLC taxed as C-Corporation | √ | √ |
References
IRS: Partnerships
IRS: Corporations
IRS: Single-Member LLC
IRS: Business Structures
IRS: Sole Proprietorships
IRS: Limited Liability Company
IRS: Tax Guide for Small Businesses
IRS: Tax Withholding and Estimated Tax
IRS: Guide to Business Expense Resources
IRS: Taxation of Limited Liability Companies
IRS: LLC Filing as Corporation or Partnership
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
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