Can a LLC be taxed as C Corp?Explained, Advantages & Disadvantages, and Examples
It’s easier to establish an LLC than a corporation, and the business will still enjoy many of the benefits of a more complex corporate structure.
If you’re a member of an LLC and you’re curious about taxation for LLC’s, and more specifically if an LLC can be taxed as a c corp, here’s what you need to know about.
We’ll also go into some additional information like when this may be a good idea, when it may not be ideal, and more.
Can LLC Be Taxed as C-Corp in 2022?
Yes, an LLC can be taxed as a c-corp.
Despite how common and popular they have become, an LLC (limited liability company) is a newer structure for a business to have, relatively speaking, compared to other business structures.
LLC’s give their members/owner the ability to separate their personal finances from the business.
With a sole proprietorship, the owner is fully responsible and liable, but as the name implies, with an LLC that liability tends to land more on the business itself rather than the owner or the members (if there are multiple owners).
The main reason people choose a sole prop structure is that it’s the easiest business to set up, but it has some drawbacks that make an LLC a much better option in certain situations.
Taxes For an LLC
Here’s some information about the different ways that you can choose to have an LLC taxed, depending on how you structure the company and what your situation is.
It’s determined based on how large the company is, in other words how many members/owners there are for the LLC.
A single owner LLC is treated the same as a sole proprietorship for tax purposes.
This means it uses Schedule C on the same return that you’re using for your personal income taxes.
You file business tax income from a single-owner LLC with your personal tax returns.
On the other hand, when you have an LLC with multiple owners, then the limited liability company is taxed using Form 1065.
This means that every partner/member/owner of the LLC will be filling out the form Schedule K-1 for the purposes of their taxes in relation to the LLC.
Taxing Your LLC As a C-Corp
Finally, another option is to have your LLC taxed as a C-Corp.
A C-Corporation is a structure in which the owners are taxed separate from the corporation itself.
Some additional things to keep in mind are that you’ll need to use the IRS’ Form 8832.
In order to file this particular form, the LLC needs to be what is considered an eligible entity.
If the LLC is eligible to be taxed as a corporation (we’ll go over the benefits of this in a moment), then there are some additional steps to complete the process of having your LLC taxed as a C-Corp.
The form submission includes a statement of consent that needs to be signed by the members of the corporation (the owners).
Each member needs to provide their names and identification numbers to identify themselves as employees of the LLC.
If it’s a single-member LLC who wants their LLC taxed as a C-Corp instead of having it taxed as a sole proprietorship, instead of providing an employee ID number, they will provide their SSN when filing with the IRS.
You can speak to a professional to ensure that you’re eligible for this, or to find out the best alternatives that are available to you in order to meet your needs.
Benefits and Advantages of Taxing Your LLC As a C-Corp
The benefits here apply when you’re in certain scenarios that would allow you to benefit from this type of taxation for an LLC.
Determining this can be handled by a professional, as mentioned above, but you can also get a good idea on your own if this would be worth looking into more further.
It’s possible, in many cases, to have your LLC taxed as a C-Corp, even if you’re the only member/owner of the LLC.
This could be advantageous for you, as opposed to having it taxed as a sole proprietorship which is what would happen by default if you don’t take steps to file Form 8832.
The people who own all or part of an S-Corp can make certain deductions for expenses on their taxes, but the amounts are limited.
Some of the items that are limited in regards to how much can be deducted include retirement plans, education costs, child care for your children, and finally the price of life insurance and medical costs.
On the other hand, C-Corps aren’t limited in these ways, which is another example of a situation that can make it more worthwhile to be taxed as a C-Corp and why many business owners are opting for this route once it’s time to structure their business and pay their taxes.
Final Thoughts n an LLC Being Taxed as a C-Corp
Something to keep in mind when trying to determine the best route in regards to how a business is taxed is that these different structures can be costly to set up.
When considering whether or not it’s worthwhile for you to pursue, take into account how much it will cost to set up and maintain these different business structures, how much money the business earns, and how much could potentially be saved due to the different ways they’re taxed.
For smaller and simpler businesses, it can be most worthwhile to stick with a sole proprietorship or an LLC that’s taxed as one.
However as businesses grow and take on more members, then an LLC taxed as a C-Corp is the clear winner in regards to which option will save the business and it’s members/owners the most money when the taxman comes knocking on their door each year.
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