Tax-Reporting vs Tax-Paying

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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:

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Matt Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.

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