LLC vs LLC Taxed as S Corp: How They Differ

An LLC taxed as an S corp is still an LLC under state law. The difference is a federal tax election made with the IRS.

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Filed 2026-10-18

The phrase "llc vs llc taxed as s corp" sounds like two companies. It is not. Both are the same kind of company under state law. The question is about federal taxes. Do you leave your LLC in its default IRS classification, or elect S corporation treatment? The company itself does not change. The tax paperwork does.

What "LLC vs LLC taxed as S corp" actually compares

This comparison is about tax classification. Your state already recognizes your LLC. The IRS sees it as something else for tax purposes. The IRS treats an LLC as a corporation, a partnership, or as part of its owner's tax return, depending on elections and member count.

So the choice is between two federal tax paths for one company. One path is the default. The other requires an election with the IRS.

How the IRS classifies an LLC by default

Do nothing, and the IRS sorts your LLC by member count.

The IRS says a single-member LLC that does not elect to be treated as a corporation is a disregarded entity. That means the IRS says a disregarded single-member LLC's activities should be reflected on its owner's federal tax return. The company's income shows up on your personal return.

A single-member LLC can elect to be treated as a corporation by filing Form 8832. That is a separate election from the S corp one. See how the IRS classifies LLCs for more.

What electing S corporation status changes

An S corp election changes how income gets taxed. The IRS says S corporations elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The IRS says the income of an S corporation generally is taxed to the shareholders rather than to the corporation itself.

The IRS says S corporations avoid double taxation on the corporate income.

The pass-through is not total. The IRS says S corporations are responsible for tax on certain built-in gains and passive income at the entity level. The IRS says an S corporation may still owe tax on certain income.

Who can elect S corp status: the eligibility rules

Not every company qualifies. The IRS sets firm rules for S corporations.

The IRS says a corporation must be a domestic corporation to qualify for S corporation status. Foreign companies cannot elect.

Shareholders are limited too. The IRS says allowable shareholders of an S corporation may be individuals, certain trusts, and estates. The IRS says an S corporation may not have partnerships, corporations or non-resident alien shareholders.

Some industries are barred. The IRS says certain financial institutions, insurance companies, and domestic international sales corporations are ineligible corporations.

Stock structure is restricted as well. The IRS says the corporation must have only one class of stock, disregarding differences in voting rights. Owners can hold shares with different voting rights.

The SBA's guide says there are special limits on S corps, and to check the IRS website for eligibility requirements. Check your facts against the IRS list before you file anything.

How to make the election: Form 2553

The election is federal, not state. The SBA guide says S corps must file with the IRS to get S corp status, a different process from registering with their state. You do not file this with the Secretary of State.

The form is Form 2553. The IRS says a corporation must submit Form 2553, signed by all the shareholders, to become an S corporation. The IRS says the Instructions for Form 2553 give all required information and show where to file the form. Read them before you send anything.

The IRS says each shareholder consents by signing and dating either in column K or on a separate consent statement. Every owner has to sign.

After you file, you wait. The IRS says the IRS service center notifies the corporation whether its election is accepted and when it takes effect. Do not assume the election worked until that notice arrives.

Miss the timing? The IRS says a late election that does not meet the requirements generally needs a private letter ruling and a user fee.

The SBA's guide says to create an S corp, you need to file form 2553 with the IRS.

What forms each path uses at tax time

Each path has its own tax forms.

On the S corp path, the IRS says S corporations use Form 1120-S for income tax. The IRS says S corporation shareholders use Form 1040 or 1040-SR with Schedule E for income tax. So the company files one return, and the owners report their shares on their personal returns.

On the default path, a disregarded single-member LLC reports on the owner's return.

EINs and the single-member LLC

Employer ID numbers trip up a lot of single-member LLC owners.

The IRS says an LLC will need an EIN if it has any employees or must file any excise tax forms. The IRS says most new single-member LLCs classified as disregarded entities will need to obtain an EIN. The IRS says a single-member disregarded LLC with no employees and no excise tax liability does not need an EIN.

Need one? The IRS says an LLC applies for an EIN by filing Form SS-4. You can learn how to apply for an EIN for an LLC and how to get an EIN number before you file.

One warning on payroll taxes. The IRS says a single-member LLC must use its name and EIN for reporting and payment of employment taxes. Once you hire, the company's own numbers go on those filings.

The election changes one thing here. The IRS says a corporation without an EIN must apply for one. The IRS EIN rules spell out the details.

Which choice fits which situation

Ask a few questions before you pick.

Do you own the company alone, with no employees and no excise taxes? The default disregarded treatment applies if you make no election. Your business income rides on your personal return.

Do you have several owners? If you want the S corp path, check who owns the company first. Partnerships and corporations cannot be S corp shareholders, and neither can non-resident aliens.

Do you want the S corp tax treatment? Check the eligibility list first. Domestic company, allowable shareholders, one class of stock, and an eligible industry. Then file Form 2553 with every shareholder's signature.

Are you weighing this against a true corporation instead? That is a different comparison.

The election is a tax choice layered on top of a company you already have or are forming.