How Are LLCs Taxed? Complete 2026 Guide
How LLCs are taxed depends on one thing: your tax classification. By default, the IRS ignores your LLC as a separate taxpayer and taxes you directly. But you can elect to be taxed as a partnership, S-Corp, or C-Corp — each with drastically different tax bills. This guide explains all four options, the tax forms involved, and exactly which classification saves you the most money.
Written & verified by Ahmad Adil, LLC School · Updated June 2026
How Are LLCs Taxed? The Short Answer
How LLCs are taxed is determined by your LLC's tax classification — not by the fact that you formed an LLC. By default, the IRS does not tax your LLC as a separate entity. Instead, it "looks through" the LLC and taxes you personally on any profits earned.
This is called pass-through taxation, and it is the default for 95% of LLCs. But LLCs are unique because you can elect to be taxed differently — as an S-Corp or C-Corp — if that saves you money. The four possible tax treatments are determined by your number of members and any elections you've filed with the IRS.
LLC Tax Classification vs. Legal Structure Your LLC's legal structure (the state entity) and its tax classification (how the IRS sees it) are completely separate. You can be an LLC legally and be taxed as a sole proprietor, partnership, S-Corp, or C-Corp. The legal structure never changes when you change your tax classification.
The 4 Ways LLCs Are Taxed
Understanding how LLCs are taxed starts with understanding the four available classifications. Each applies to a different type of LLC owner, carries different tax forms, and results in a very different total tax bill.
You don't choose your default. The IRS assigns it automatically: one member = disregarded entity, two or more members = partnership. You only need to take action if you want to change your classification using Form 2553 (S-Corp) or Form 8832 (C-Corp). Staying with the default costs nothing and requires no IRS filing.
Single-Member LLC: Taxed as a Disregarded Entity
When you form a single-member LLC without making any tax election, the IRS treats it as a "disregarded entity." This means the LLC is invisible for tax purposes — all income and expenses flow directly to you and are reported on your personal Form 1040.
Your LLC's profit and loss are reported on Schedule C, which attaches to your Form 1040. Schedule C calculates your net profit (revenue minus expenses), which then flows to two taxes: self-employment tax and federal income tax.
What "Disregarded Entity" Means in Practice
- No separate federal tax return for the LLC
- All profit reported on Schedule C of your personal 1040
- Self-employment tax: 15.3% on 92.35% of net profit (covers Social Security and Medicare)
- Federal income tax at your marginal rate, after the half-SE deduction and standard deduction
- 20% QBI deduction available on most LLC income (permanent under OBBBA 2025)
- Quarterly estimated tax payments required — no employer withholding
Multi-Member LLC: Taxed as a Partnership
A multi-member LLC is automatically taxed as a partnership. The LLC itself files an informational return — Form 1065, due March 15 — but pays no federal income tax at the entity level. This is still pass-through taxation.
Each member receives a Schedule K-1 from the LLC showing their allocated share of income, deductions, and credits. Members then report their K-1 income on their individual Form 1040 and pay income tax plus self-employment tax on their active share.
Form 1065 is due March 15 — not April 15. Missing this deadline costs $260 per partner per month. A 3-member LLC filing 2 months late owes $1,560 in avoidable penalties. File Form 7004 for a 6-month extension if needed — but file something on time.
Phantom Income: The Multi-Member LLC Tax Trap
In a partnership-taxed LLC, you pay tax on your allocated share of profit — regardless of whether that money was actually distributed to you. If the LLC retains $50,000 of your allocated profit for reinvestment, you still owe income tax and SE tax on that $50,000. This is called phantom income.
The fix: your operating agreement should include a tax distribution clause requiring the LLC to distribute at least enough cash for each member to cover their annual tax obligation. This is one of the most important provisions a multi-member LLC can have.
LLC Taxed as S-Corp: How It Reduces Self-Employment Tax
When your LLC elects S-Corp status by filing Form 2553, the way LLCs are taxed changes significantly — specifically how self-employment tax is calculated. Instead of paying SE tax on 100% of your net profit, you split your income into two buckets.
You pay yourself a reasonable W-2 salary — subject to payroll taxes (FICA: 15.3% combined employee + employer). The remaining profit is distributed to you as an S-Corp distribution. Distributions are not subject to the 15.3% SE tax — only your income tax rate applies to them. That gap is where the savings come from.
The 2026 deadline to elect S-Corp status for the full tax year is March 15, 2026. If you missed it, late election relief is available under Revenue Procedure 2013-30. Read the complete guide in our LLC Taxed as S-Corp guide.
LLC Taxed as C-Corp: When Double Taxation Makes Sense
Filing Form 8832 elects C-Corp tax treatment for your LLC. The LLC then pays 21% flat federal corporate income tax on its net profit. Any remaining profit distributed to you as dividends is taxed again on your personal return — this is the "double taxation" of C-Corps.
For most small LLC owners, C-Corp taxation destroys value. But there are three specific situations where it makes strategic sense:
C-Corp election has a 60-month lock-in. Once you elect C-Corp status via Form 8832, you cannot change your tax classification for 5 years without IRS consent. This is not a decision to make casually. If you elect C-Corp and then change your mind, you're stuck — and the conversion out of C-Corp can trigger taxable events. Get a CPA to model the full 10-year tax picture before filing Form 8832.
How LLCs Are Taxed: Side-by-Side Comparison (2026)
Here's a complete comparison of all four LLC tax classifications — covering entity-level tax, SE tax exposure, key forms, filing deadlines, and when each makes sense.
| Tax Classification | Entity Tax? | SE Tax? | Key Form(s) | Deadline | Best For |
|---|---|---|---|---|---|
| Disregarded Entity (SMLLC default) | None | Yes — 100% of profit | Schedule C + 1040 | April 15 | Solo owners, <$60K profit |
| Partnership (MMLLC default) | None | Yes — each member's K-1 | Form 1065 + K-1 + 1040 | March 15 | 2+ members, any profit level |
| S-Corporation (Form 2553) | None | Partial — salary only | Form 1120-S + W-2 + K-1 | March 15 | $60K–$500K net profit |
| C-Corporation (Form 8832) | Yes — 21% flat | No SE tax | Form 1120 | April 15 | VC-track, QSBS, retained earnings |
Self-Employment Tax for LLC Owners (2026)
For default LLCs, self-employment tax is the largest single tax burden for most owners — and the one they're least prepared for. The self-employment tax rate is 15.3%, applied to 92.35% of your net LLC profit. It covers 12.4% for Social Security (on the first $184,500 of earnings in 2026) and 2.9% for Medicare (unlimited).
On $100,000 net profit: $100,000 × 92.35% = $92,350 taxable base. SE tax = $92,350 × 15.3% = $14,129. You can then deduct 50% of SE tax on Schedule 1, reducing your taxable income by $7,065.
Ahmad Adil's Take: Most new LLC owners are blindsided by SE tax. They see $80,000 in profit, think they owe maybe $18,000 in income tax at 22%, and then get hit with another $11,300 in SE tax they didn't plan for. Set aside 28–30% of every dollar your LLC earns from Day 1. Then at $60K+ profit, seriously model the S-Corp election — I've seen clients save $8,000–$14,000 a year by making the switch. The election costs you $2,500/yr in payroll service. The math is usually obvious.
The 20% QBI Deduction for LLC Owners (Permanent Under OBBBA)
The Qualified Business Income (QBI) deduction under IRC §199A allows most LLC owners to deduct 20% of their net business income from their taxable income — reducing income tax (not SE tax). The One Big Beautiful Bill Act made this deduction permanent in 2025, and added a minimum $400 deduction for owners with $1,000+ in QBI.
On $100,000 LLC net profit: QBI deduction = $20,000 off your taxable income. At the 22% bracket, that saves $4,400 in income tax — automatically, with no extra filing. It flows directly from Schedule C.
| QBI Deduction — 2026 Key Numbers | Amount / Threshold |
|---|---|
| Deduction rate | 20% of qualified business income |
| Phase-out begins — Single filers | ~$203,000 |
| Phase-out begins — Married Filing Jointly | ~$406,000 |
| Minimum deduction (new — OBBBA) | $400 if QBI is $1,000+ |
| Status | Permanent — no sunset |
| Reduces SE tax? | No — income tax only |
| Applies to S-Corp distributions? | Yes |
| Applies to C-Corp? | No |
Quarterly Estimated Taxes for LLC Owners
Because no employer withholds taxes from LLC distributions or owner's draws, the IRS requires quarterly estimated payments. If you expect to owe $1,000 or more in total tax for the year, you must pay quarterly — or face underpayment penalties.
Use IRS Form 1040-ES to calculate and pay. You can pay online for free via IRS Direct Pay or EFTPS. Safe harbor rule: pay at least 100% of your prior-year total tax (110% if your prior AGI exceeded $150,000) and no underpayment penalty applies, even if you owe more at filing.
2026 Quarterly Estimated Tax Due Dates
State LLC Taxes: What Changes by State
Federal pass-through treatment is consistent across all 50 states, but state-level LLC taxes vary significantly. Most states follow the federal pass-through approach, but several impose additional entity-level fees or taxes.
| State | Entity-Level LLC Fee/Tax | Notes |
|---|---|---|
| California | $800/yr minimum + LLC fee | Franchise tax applies regardless of profit. Gross receipts fee on revenue above $250K. |
| New York | Annual filing fee — $25–$4,500 | Fee based on gross income. NYC adds a separate 4% General Corporation Tax for NYC operations. |
| Texas | Franchise tax above $2.47M revenue | No personal income tax. Most small LLCs fall below the threshold. |
| Florida | $138.75/yr annual report | No personal income tax. Annual report not a tax — compliance filing only. |
| Wyoming | $60/yr report fee | No personal income tax. Most pass-through-friendly state for LLC owners. |
| AZ, MO, NM, OH | $0 annual fee | No annual state LLC fee of any kind. |
See state-specific details in our LLC Annual Fees by State guide and the LLC Filing Fees by State comparison. For California specifically, the $800/year minimum franchise tax applies to foreign LLCs registered in California too — not just California-formed LLCs.
Which LLC Tax Classification Is Right for You?
Use this tool to find your best LLC tax classification based on your situation. Answer three questions to get a specific recommendation with the relevant forms.
- ✓Your LLC's tax treatment starts at formation — structure it correctly from Day 1
- ✓$39 + state fee — includes operating agreement template and EIN guidance
- ✓1 FREE year of Registered Agent ($125 value) — then $125/yr flat, price-locked
- ✓Privacy by Default — your home address stays off public records
- ✓No upsells · Never sells your data · Same-day filing available
Disclosure: LLC School may earn a commission via this link, at no cost to you. We recommend Northwest because of their price-locked RA fee, Privacy by Default policy, and no data-selling practices. See our advertising disclosure.
How Are LLCs Taxed — FAQ
Ahmad Adil is the founder and CEO of LLC School. Every tax rate, form number, and deadline in this guide is verified against current IRS publications and updated for 2026 — including the OBBBA changes to QBI and QSBS. This guide is educational and does not constitute tax advice. Consult a licensed CPA for advice specific to your situation.
About Ahmad Adil → LLC Taxes Overview →