Research Report

LLC Tax Elections & Classifications

An interactive analysis of how Limited Liability Companies are taxed. Explore the implications of default classifications versus electing S Corp or C Corp status via Forms 8832 and 2553.

1. The Four Paths

By default, an LLC is a "chameleon." It takes on the tax identity of its owners unless it asks the IRS otherwise. Select a card below to understand the core mechanism of each classification.

👤 Default

Sole Proprietorship

The default for Single-Member LLCs. You and the business are one for tax purposes. No separate tax return for the LLC.

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👥 Default

Partnership

The default for Multi-Member LLCs. Pass-through entity requiring Form 1065 and K-1s for each member.

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🏢 Form 8832

C Corporation

A separate taxable entity. Pays corporate tax. Owners pay tax again on dividends (Double Taxation). Useful for VC funding.

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📉 Form 2553

S Corporation

A pass-through tax status elected to minimize Self-Employment taxes via a "reasonable salary" split.

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2. Tax Impact Simulator

The primary reason LLCs elect **S Corp status** is to reduce Self-Employment (SE) Tax. Unlike a default LLC where 100% of profit is subject to SE tax (15.3%), an S Corp splits profit into "Salary" (taxed) and "Distributions" (not subject to SE tax).

Adjust the profit slider to see where the S Corp becomes beneficial (usually around $60k-$80k profit).

Projected Annual Profit
$80,000
$20k $125k $250k

Standard LLC Taxes

$12,240
Est. SE Tax (15.3%)

S Corp Taxes

$9,180
SE Tax on Salary Only (60/40 Split)

Potential Savings

$3,060

*Does not account for payroll costs (~$1-2k/yr).

3. Forms & Critical Deadlines

Timing is everything. Late elections are possible but require specific "Relief" procedures (Rev. Proc. 2013-30). Failing to file on time can default you back to your original tax status for the entire year.

Form 8832 Entity Classification

Used to elect C Corp status (or revert to default).

The "75 Day" Rule

You can file this form at any time, but the effective date cannot be more than 75 days prior to the filing date, nor more than 12 months after.

Form 2553 S Corp Election

Strict deadline for existing LLCs operating on a calendar year.

JAN 01
Tax Year Begins
MAR 15
Deadline for Current Year
Missed it? You may qualify for "Late Election Relief" if you file within 3 years and 75 days, provided you have "reasonable cause."

4. Comparative Analysis

Compare the long-term implications of your election.

Complexity Cost

  • 1

    Sole Prop (Default)

    Zero complexity. Schedule C attaches to your personal 1040. No payroll required.

  • 2

    S Corporation

    High complexity. Must run payroll (W-2s) for owners. Requires separate tax return (1120-S). Strict governance rules.

  • 3

    C Corporation

    Highest complexity. Corporate formalities (minutes, bylaws) are mandatory to preserve liability protection. Complex double taxation filings.

Relative Administrative Cost/Effort