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
https://www.irs.gov/publications/p334
https://www.irs.gov/publications/p505
https://www.irs.gov/publications/p535
https://www.irs.gov/publications/p541
https://www.irs.gov/publications/p542
https://www.irs.gov/publications/p3402
https://www.irs.gov/businesses/small-businesses-self-employed/business-structures
https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorships
https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
https://www.irs.gov/businesses/small-businesses-self-employed/llc-filing-as-a-corporation-or-partnership
https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies