What is LLC (Limited Liability Company)?
An LLC is a US business entity that combines limited liability with flexible tax treatment. Single-member LLCs default to disregarded entity status (taxed as sole proprietor on Schedule C). Multi-member LLCs default to partnership taxation (Form 1065). LLCs can elect S-corp or C-corp tax treatment via Form 8832/2553.
Current Rate (Calendar year (default))
Default pass-through; can elect S-corp (15.3% SE saving) or C-corp (21% flat)
Example
A single-member LLC earning $100,000 profit defaults to Schedule C taxation: 15.3% SE tax on net SE earnings + federal income tax at marginal rate. Electing S-corp treatment can save ~$6,000–$10,000 of FICA at this income level.
Related terms
An S-corporation is a US entity that elects pass-through taxation under Subchapter S. The corporation itself pays no federal income tax; profits flow to shareholders' personal returns. Limited to 100 shareholders, all US individuals (or certain trusts), and one class of stock. Owner-employees must pay 'reasonable compensation' as W-2 wages subject to FICA.
A C-corporation is a US business entity taxed separately from its owners under Subchapter C of the Internal Revenue Code. It pays 21% federal corporate income tax on profits, and shareholders pay personal tax on dividends — the 'double taxation' of C-corp profits. Most VC-backed startups are Delaware C-corps.
Form 1065 is the annual return for US partnerships and multi-member LLCs taxed as partnerships, due 15 March for calendar-year filers. The partnership does not pay federal income tax; profits flow to partners via Schedule K-1.
Confused by United States accounting jargon?
AccountsOS explains United States terms in plain English and applies the right rules to your books automatically.
Try Free