If you operate an LLC, the IRS gives you options for how to be taxed. This flexibility is powerful, but it also means you must choose wisely. Whether you’re a solo entrepreneur or co-own an LLC with partners, your election impacts everything from annual filing requirements to how much tax you pay.
🌐 Default IRS Classifications
- Single-member LLC: Defaulted to a sole proprietorship. Report business activity on Schedule C of Form 1040.
- Multi-member LLC: Defaulted to a partnership. File Form 1065 and issue Schedule K-1s to members.
To change your default status, you must file Form 8832 or Form 2553.
📄 Partnership Filing Requirements
LLCs taxed as partnerships file Form 1065 (informational return). Profits and losses pass through to members via Schedule K-1, which must be reported on each member’s individual return.
Example: Two owners split $100,000 profit after $60,000 expenses. Each reports $20,000 income from a K-1.
By filing Form 8832, an LLC can elect C-Corp treatment. The LLC files Form 1120 and pays corporate tax. Distributions to members are taxed again as dividends (“double taxation”).
An LLC may file Form 2553 to elect S-Corp status. It files Form 1120S and issues Schedule K-1s. Owners typically draw a salary (W-2), and remaining profits pass through without self-employment tax.
🚫 Five-Year Lock-In Rule
- Once you file Form 8832, you generally can’t change again for five years.
- S-Corp elections (Form 2553) also come with restrictions.
Learn more about the Five-Year Lock-In Rule →
💳 Tracking Deductions With Zoho Expense
Pro tip: Use Zoho Expense to snap receipts, log mileage, and categorize costs. This keeps your LLC audit-ready. Bank statements alone aren’t proof.
IRS Reminder: Spend 15 minutes weekly documenting expenses. It can save thousands in disallowed deductions later.
| LLC Type |
IRS Treatment |
Primary Tax Return |
Other Forms |
Pass-through? |
| Single-member LLC |
Sole Proprietor |
Form 1040 |
Schedule C |
✅ Yes |
| Multi-member LLC |
Partnership |
Form 1065 |
Schedule K-1s |
✅ Yes |
| LLC electing C-Corp |
C-Corporation |
Form 1120 |
1099-DIV |
❌ No |
| LLC electing S-Corp |
S-Corporation |
Form 1120S |
K-1s, W-2s |
✅ Yes |
📌 FAQ
Q: What happens if I don’t file an election?
A: The IRS assigns default treatment: sole proprietor (single-member) or partnership (multi-member).
Q: Why use Zoho Expense?
A: It organizes receipts, mileage, and categories in one place, keeping you IRS-compliant and prepared for audits.