Tax Classification for LLC Members: How to File

Man learning how to classify his LLC business for taxes.

LLC Taxes

LLC stands for limited liability corporation. There is no limit to the number of members the corporation can have, which makes them desirable to many businesses.

If the LLC only has one owner, the IRS typically classifies it as a Schedule C business for a single member LLC for tax purposes. Multiple owner LLCs are typically classified as a partnership (Form 1065). If an LLC wishes to be viewed as a disregarded entity for tax purposes, they will need to file Form 8832 with the IRS to elect to be treated as a Corporation. This would require the LLC to file Form 1120.

Learn more about tax filing options for single and multiple member LLCs.

How to file for a single member LLC

If your client chooses not to treat their LLC as a corporation for tax purposes, then the owner must report all revenue, profits, and losses of the LLC and submit it with their tax return.

In this situation, the only time a single member LLC member would not file on a Schedule C would be if the business was a farm (Schedule F) or it was rental real estate (Schedule E).

How to file for a corporation LLC

Some multi-member LLCs will choose to file as a corporation. This usually means that the LLC will need to file Form 1120. No items would pass through to an individual’s 1040.

If the LLC qualifies for and chooses to be an S corporation, it would file Form 1120S and complete the Schedule K-1s as apart of this form. This means that each member would receive a Schedule K-1 reporting their share of the business earnings.

How to file for a partnership LLC

The final method for multi-member LLCs is filing as a partnership. This is a pass-through business model where each business member is required to report their share of the business profits on their individual tax return. Your client’s share may be subject to the self-employed tax if they choose this method.

However, this means the LLC itself will not get taxed on total profits, which could be good for your client’s business. The partnership files Form 1065 U.S. Return of Partnership Income which includes Schedule K-1 which allows it to pass through its income, deductions, credits, and other relevant items for the member to prepare their return. Form 1065 has no federal tax liability.

Also remember to inform your client of the new Qualified Business Income Deduction, allowing them to deduct up to 20% of their qualified business income if they choose this method.

Learn more about the differences between the many types of Schedule K-1 here.