No, an LLC is not an S-Corp (S-Corporation).
An LLC is a legal entity formed with the state. An S-Corporation is a tax election made with the IRS. Those are very different things.
Having said that, an LLC can be taxed like an S-Corp.
But let’s back up a bit. The two most common types of legal entities formed at the state-level are a Corporation and an LLC (see LLC vs Corporation).
Now let’s look at how the IRS treats these legal entities by default.
The IRS taxes a Corporation, by default, like a C-Corporation (under Subchapter C of the Internal Revenue Code).
How the IRS treats LLCs is a little bit different:
This is because there is no “LLC classification” with the IRS. Instead, LLCs are taxed by the IRS like already existing tax classifications (Sole Proprietorship, Partnerships, C-Corporations, and S-Corporations).
And the default tax treatment of an LLC will depend on how many owners (LLC Members) there are.
Single-Member LLC tax treatment
By default, the IRS will tax a Single-Member LLC like a Sole Proprietorship. This means the LLC itself doesn’t file a tax return. Instead, the owner of the LLC reports the LLC’s income and expenses on their personal tax return (Form 1040).
This is if the LLC is owned by a US citizen or US resident.
If the Single-Member LLC is owned by another company, the LLC will be taxed like a branch/division of the parent company.
If the Single-Member LLC is owned by a non-US resident, the taxes due (if any) will be the responsibility of the non-US resident (aka non-resident alien).
Check out LLC taxed as Sole Proprietorship for more details.
Non-US residents with Single-Member LLCs: Please see Form 5472 for foreign-owned LLCs.
Multi-Member LLC tax treatment
By default, the IRS will tax a Multi-Member LLC like a Partnership. This means the LLC itself now has to file a tax return (Form 1065 Partnership Return). Additionally, the LLC issues K-1s to the Members. And then the Members report their K-1 income on their personal tax return (Form 1040).
Check out LLC taxed as a Partnership for more details.
LLCs can be taxed as Corporations (optional)
Instead of the default treatment, your LLC can make an election with the IRS. Essentially, you are asking the IRS to tax your LLC as one of the following:
- LLC taxed as C-Corporation (not very common)
- LLC taxed as S-Corporation (only helpful if net income is over $70,000 per Member)
If you want your LLC to be taxed as a C-Corporation, you’ll need to file Form 8832 with the IRS.
If you want your LLC to be taxed as an S-Corporation, you’ll need to file Form 2553 with the IRS.
Now that the IRS tax classifications (default vs elective) have been explained, let’s get back to the original question:
So, is my LLC an S-Corp?
Again, no, an LLC is not an S-Corp. They are two completely different things.
An LLC can be taxed like an S-Corp though. So the real question should be:
LLC taxed in default status vs LLC taxed as S-Corp?
Quick answer: If your LLC is new (and not generating a lot of profit yet), the S-Corp election doesn’t make sense. This is because S-Corporations are more complicated and more expensive.
However, if your LLC is making at least $70,000 in net income (per LLC Member), then you may want to speak to an accountant about the pros and cons.
While an LLC taxed as an S-Corp will save you money on self-employment taxes, it also costs more money to administer and maintain. You’ll need to hire a payroll company and you’ll likely need to hire a bookkeeper. Additionally, your accounting expenses will go up.
For all the details, please see our comprehensive guide: LLC taxed like an S-Corp.
What is the difference between an LLC and an S-Corp?
To recap, an LLC is a state legal entity that by default, is taxed like a Sole Proprietorship or Partnership.
On the other hand, an S-Corporation is a tax election made by a legal entity, such as an LLC or Corporation.
S-Corporation gets its name from Subchapter S of the Internal Revenue Code.
Is an LLC better than an S-Corp?
An LLC (taxed in its default status) is better than an S-Corp (an LLC taxed as an S-Corp) for new businesses that aren’t generating profit yet.
If your business starts making around $70,000 net income (per LLC Member), then it’s worth having a conversation with an accountant.
However, S-Corporations are not as simple as they may first sound. There are additional payroll and IRS reporting requirements. And they are more expensive and complicated to maintain and keep in compliance.
How do I know if my LLC is an S-Corp?
Unfortunately, there isn’t an online tool from the IRS where you can look up your LLC and see how it’s taxed.
If you have an accountant, they should know, so we recommend calling them.
If you don’t have an accountant, or you’re not sure if you filed a Form 2553 to make the S-Corp election for your LLC, then you’ll need to call the IRS.
How to call the IRS and determine if your LLC is taxed like an S-Corp
- Call the IRS at 1-800-829-4933 (the “business and specialty tax line”).
- Press option 1 for English.
- Press option 1 for Employer Identification Numbers.
- Press option 3 for “If you already have an EIN, but you can’t remember it, etc.”
- Tell the IRS agent that you have an LLC and need to know what return the IRS is expecting
If they are expecting Form 1040, your LLC is taxed like a Sole Proprietorship
If they are expecting Form 1065, your LLC is taxed like a Partnership
If they are expecting Form 1120-S, your LLC is taxed like an S-Corporation
If they are expecting Form 1120, your LLC is taxed like a C-Corporation
Hope that helps!
Code of Federal Regulations: Section 301.7701-1
Code of Federal Regulations: Section 301.7701-2
Code of Federal Regulations: Section 301.7701-3
IRS: S Corporations
IRS: Sole Proprietorships
IRS: Limited Liability Company (LLC)
IRS: Tax Information For Partnerships
IRS: Tax Information For Corporations
IRS: LLC Filing as a Corporation or Partnership