Tax-reporting vs. Tax-paying

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:

Matt Horwitz

Founder & Educator, LLC University®

Matt Horwitz has been the leading expert on LLC education for the past decade. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC that other companies weren't offering. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
 
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.