Category: Tax Questions
How Do I Classify A Domestic Limited Liability Company (LLC)?
A domestic limited liability company (LLC) is an entity:
- Formed under state law by filing articles of organization as an LLC.
- Where none of the members of an LLC are personally liable for its debts.
- Must be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity disregarded as separate from its owner), a partnership, or a corporation. However, if the LLC has employees, for employment tax purposes the LLC will be treated as a corporation.
Generally, if a domestic LLC has:
- Only one owner, (see Publication 555, on community property states), it will automatically be treated as if it were a sole proprietorship (a disregarded entity), unless an election is made for it to be treated as a corporation.
- Has two or more owners, it will automatically be treated as a partnership unless an election is made for it to be treated as a corporation.
If the LLC does not make a classification election, a default classification of disregarded entity (single-member LLC) or partnership (multi-member LLC) will apply. The election referred to is made using the Form 8832 (PDF), Entity Classification Election. If a taxpayer does not file Form 8832 (PDF), a default classification will apply. Different classification rules may apply in special situations, including banks, insurance companies, and nonprofit organizations that are LLCs.
Last Updated: 12/18/2017