<p>A Limited Liability Company (LLC) protects your personal assets, but the IRS does not have a special tax category for LLCs. Instead, the IRS taxes your LLC based on its default classification or an election you make.</p><h2>Single-Member LLC (Default)</h2><p>Treated as a <strong>disregarded entity</strong> β€” the IRS ignores the LLC and taxes you directly. You report income and expenses on <strong>Schedule C</strong> and pay self-employment tax (15.3%) on net profit.</p><h2>Multi-Member LLC (Default)</h2><p>Treated as a <strong>partnership</strong>. The LLC files <strong>Form 1065</strong>, and each member receives a Schedule K-1 reporting their share of income. Each member pays self-employment tax on their distributive share.</p><h2>S-Corporation Election</h2><p>Any LLC can elect S-corp status by filing <strong>Form 2553</strong>. This allows owners to pay themselves a reasonable salary (subject to payroll taxes) and take additional profits as distributions (not subject to SE tax). This can save thousands for profitable businesses.</p><h2>C-Corporation Election</h2><p>LLCs can also elect C-corp status (Form 8832), subjecting profits to the <strong>21% corporate tax rate</strong>. Generally only beneficial for businesses retaining significant profits.</p><h2>Which Is Best?</h2><p>For most small business owners with net profit above $40,000–$50,000, the S-corp election often provides the greatest tax savings. Consult an Enrolled Agent or CPA to model the numbers for your situation.</p><p><em>Source: IRS Publication 3402; IRS Topic No. 429; Form 2553 Instructions</em></p>