By default, a single-member LLC is taxed as a sole proprietorship (Schedule C) and a multi-member LLC is taxed as a partnership (Form 1065). You can elect S-corp or C-corp taxation if beneficial.

When should an LLC elect S-corp status?

Generally when net profits consistently exceed a reasonable salary (often cited around $40,000-$50,000+), because the S-corp election allows distributions above salary to avoid the 15.3% self-employment tax.

Does an LLC protect me from self-employment tax?

No. An LLC alone does not change your tax treatment. You need an S-corp or C-corp election to potentially reduce self-employment taxes.

business Audience: self employed 3 min read

LLC Taxes Explained

How LLCs are taxed by default and when to elect S-corp status.

Last updated on March 10, 2026

LLCs are flexible. The tax treatment depends on how many members you have and whether you elect a different tax status.

Key Takeaways

Single-member LLCs are taxed like sole proprietorships by default.
Multi-member LLCs default to partnership taxation.
S-corp election can reduce payroll taxes in some cases.

Default Tax Treatment

Single-member LLC: Schedule C
Multi-member LLC: Partnership return (Form 1065)

Electing S-Corp Status

Form 2553 is used to elect S-corp taxation.
Form 8832 can be used to elect corporate taxation before choosing S-corp.
Elections generally must be filed within 2 months and 15 days of the tax year.

When S-Corp Election Helps

If profits are materially higher than a reasonable salary, S-corp status can reduce payroll taxes on distributions. The Social Security wage base is $176,100 in 2025 and $183,000 in 2026, so savings are most significant for high earners below those thresholds.

See the S-corp tax strategies guide for details.

Self-Employment Tax Breakdown

As a default LLC (sole proprietorship), you pay self-employment tax on all net profit:

Component	Rate	2025 Wage Base
Social Security	12.4%	$176,100
Medicare	2.9%	No limit
Total	15.3%

With an S-corp election, only your W-2 salary is subject to payroll taxes. Distributions above reasonable compensation avoid this 15.3% hit. If your business qualifies, you may also be able to take the QBI deduction on pass-through income.

LLC Tax Election Comparison

Tax Treatment	Filed With	SE Tax on All Profit?	Complexity
Sole Proprietorship (default single-member)	Schedule C	Yes	Low
Partnership (default multi-member)	Form 1065	Yes (on guaranteed payments)	Medium
S-Corporation	Form 1120-S	Only on salary	High
C-Corporation	Form 1120	No (but double taxation)	High

Retirement Account Options for LLC Owners

As an LLC owner, you can open retirement accounts that reduce taxable income:

Solo 401(k): Up to $23,500 employee deferral plus 25% of compensation as employer contribution (2025), with a combined maximum of $70,000 under age 50. See the Solo 401(k) strategy for details.
SEP IRA: Up to 25% of net self-employment income, capped at $70,000 (2025). See our SEP IRA vs SIMPLE IRA comparison.
Self-employed health insurance deduction: Deductible above the line if the LLC has net profit.

How sharper.tax Helps

When you upload your tax return to sharper.tax, we analyze your Schedule C or business income to determine whether your LLC structure is tax-efficient. Our platform identifies whether an S-corp election could save you money, estimates your self-employment tax burden, and flags retirement contribution opportunities you may be missing. Sophisticated tax planning used to require a high-end CPA --- we make it available for free.

Sources

The information above is educational and not tax advice.