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Federal tax for an LLC depends on how many members it has and whether it files an election. The IRS explains the defaults on its LLC page. Your state sets its own taxes on top of this.
Default treatment
The IRS says an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax. An LLC with two or more members is a partnership for federal income tax by default.
Disregarded does not mean ignored. It means the LLC does not file its own income tax return. The profit shows up on the owner's return.
Single-member LLC returns
The IRS page on single-member LLCs names the schedules the owner uses.
- Schedule C for a trade or business.
- Schedule E for rental or other supplemental income.
- Schedule F for farming.
Employment taxes work differently. For employment tax and certain excise taxes, the IRS says an LLC with one member is still considered a separate entity. The LLC uses its own name and EIN for those. See how to get an EIN.
Multi-member LLC returns
A partnership files Form 1065. The IRS Form 1065 page says the partnership does not pay tax on its income but passes any profits or losses through to its partners. The partnership files a copy of Schedule K-1 for each partner, and each partner reports their share. Partners are not paid wages through payroll as employees.
Self-employment tax
The IRS says an individual owner of a single-member LLC that runs a trade or business is subject to self-employment tax in the same way as a sole proprietor. The IRS self-employment tax page gives a 15.3 percent rate, split into 12.4 percent for Social Security and 2.9 percent for Medicare. You use Schedule SE to work it out.
The SBA also notes that LLC members are considered self-employed and pay these contributions. See the SBA page on choosing a business structure.
Changing the classification
An LLC can file Form 8832 to choose how it is classified. The IRS Form 8832 page lists the options as a corporation, a partnership, or an entity disregarded as separate from its owner. The LLC page adds that an election cannot take effect more than 75 days before it is filed, or later than 12 months after it is filed.
An LLC that wants S corporation status uses a different form. Read about Form 2553 and the LLC and S corp comparison.
What differs by state
Federal rules are the same everywhere. State rules are not. Some states charge a fee or a franchise tax on LLCs, and some tax at the entity level. Look at your state page first, such as Texas or California.
This is general information, not tax advice. A tax professional can tell you which setup fits your income.
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