Key Takeaways

  • An LLC can elect to be taxed as a C corporation without fully converting its legal structure, but this requires IRS approval and compliance with corporate tax rules for at least five years.
  • Opening a C corp generally offers benefits such as easier access to capital, perpetual existence, and limited liability for shareholders, but comes with double taxation and increased administrative requirements.
  • Converting or electing C corp taxation may make sense for LLCs seeking outside investors, issuing multiple classes of stock, or planning for significant reinvestment.
  • The process for electing C corp status involves filing IRS Form 8832, maintaining proper records, and following corporate formalities.
  • A C corp’s governance involves directors, officers, and shareholders, and must meet ongoing compliance requirements such as annual reports, shareholder meetings, and state filing fees.

Can an LLC File as a C-Corp?

If you have previously formed a limited liability company, also known as an LLC, you will not be considered a C-Corp unless you take the appropriate course of action. In this case, you would need to form a legal corporate entity. With that being said, if you would like your LLC to be a C-Corp for taxation purposes, the IRS approves of this transition. However, in doing so, the LLC must comply with all associated corporate tax rules for a certain amount of years.

Although you can certainly apply to be taxed as a corporation instead of a partnership or sole proprietorship, many tax advisors view an LLC as an ideal business structure. This leads to the question, why would you want to be taxed as a corporation? 

Why an LLC Might Choose C Corporation Status

While LLCs are popular for their flexible tax treatment and simplified compliance, there are scenarios where electing C corporation status is advantageous. Many businesses make this choice to:

  • Attract investors: C corps can issue multiple classes of stock and are often the preferred vehicle for venture capital funding.
  • Reinvest profits: Businesses planning significant reinvestment into operations can benefit from corporate tax rates, which may be lower than individual rates for high earners.
  • Establish a perpetual entity: Unlike some LLCs, C corps have perpetual existence, which can provide stability and continuity during ownership changes.
  • Build credibility: Some industries and partners may view incorporation as a sign of permanence and professionalism.

However, the decision should be weighed against potential downsides such as double taxation, more complex recordkeeping, and stricter compliance requirements.

Corporate Taxes for LLCs

If you are currently an LLC and file your taxes as a C-Corp, you will be responsible for double taxation. This is represented by:

  • The LLC needing to pay taxes itself, based on all profits made.
  • Then, a second tax will occur at the owner or "member" level. 

In comparison, when a company is taxed as an LLC, it is subject to partnership or sole proprietorship taxation. In this case:

  • If an LLC is owned by one member only, you would need to file Schedule C on your individual tax return.
  • If an LLC has multiple members, Form 1065 will need to be filed, along with Schedule K-1s for each individual member.

How C Corporation Taxes Work

When opening a C corp or electing C corp taxation as an LLC, it’s important to understand how the tax structure functions:

  • Entity-level taxation: The corporation pays income tax on its net earnings using the federal corporate tax rate (currently 21% at the federal level).
  • Shareholder taxation: Dividends distributed to shareholders are taxed again at the individual level, creating the “double taxation” effect.
  • Possible tax planning advantages: Retaining earnings within the corporation for growth can defer individual tax liability, and certain deductions—such as fringe benefits for employees—may be more generous than those available to LLCs taxed as pass-through entities.

State-level corporate taxes may also apply, and rates vary significantly. In some states, corporations face franchise taxes or minimum fees, which should be factored into the overall cost of electing C corp status.

Making the Election 

If C-Corp tax treatment is ideal for your business, you can seek C-Corp election for tax purposes. This will require you to file Form 8832 with the IRS. Please note, the earliest you can be considered a C-Corp for taxation purposes is 75 days prior to the filing of Form 8832.

Once elected, the LLC will need to pay corporate taxes for a minimum of five years. Only after five years can the LLC file for a new election.

When filing, an LLC will become an "association" — meaning the company is an eligible entity that will be taxed as a corporation. Within the consent statement, all members can sign or a single member can sign on everyone's behalf. If one member only signs, there should be some record that all members agreed during a company membership meeting. 

You must also include:

  • The name(s) and associated number(s) of all company owners.
  • If a single-member LLC, a social security number will be included.
  • If a multi-member LLC, an Employer Identification Number (EIN) will be included.

Steps for Opening a C Corp from an LLC

Formally transitioning your LLC to operate as a C corporation for tax purposes involves a few key steps:

  1. Evaluate with professionals: Consult a tax advisor or attorney to determine if C corp election aligns with your growth and funding plans.
  2. File IRS Form 8832: This form notifies the IRS that you wish to be taxed as a corporation. For taxation specifically as a C corporation, you’ll also need to avoid filing Form 2553 (which is for S corp status).
  3. Observe corporate formalities: Even if the underlying entity remains an LLC legally, you should maintain corporate-style records, separate finances, and follow governance protocols.
  4. Meet state requirements: Depending on your state, additional filings or amendments to your articles of organization may be necessary.
  5. Plan for long-term compliance: C corps must hold annual shareholder meetings, keep minutes, and submit annual reports or franchise tax filings.

Electing C-Corporation Tax Treatment for a Single-Member LLC

A corporation means that it is a separate entity from all employees and owners. This means that the corporation itself must pay taxes on the company's net income. This process differs from the steps you would take when filing your individual tax return. 

For example, as a single-member LLC that is classified as a corporation, you will not be treated as self-employed. The IRS does not assume that you received all of your company's profits. In contrast, you can receive whatever amount of money you choose from your LLC in a given year. On your personal taxes, you will only be taxed on that amount. 

For example, if the LLC made $75,000 gross and you personally took $15,000, you would report income of $15,000 on your personal tax return. The most common means of payment would be as salary or as a dividend. It is important to note that a dividend is not deductible. This means that both your single-member LLC and you (payable on your individual tax return) will have to pay taxes on all dividends. This is known as double taxation.

However, if you decide to pay yourself a salary, these payments are considered to be tax deductible. If you do opt for this route, however, know that you must follow employer tax rules. You will be required to withhold taxes and pay that amount to the federal government. It is highly recommended that you place all applicable taxes in a separate account.

Ongoing Compliance and Governance for C Corps

Once your LLC is taxed as a C corp—or once you’ve fully incorporated—ongoing compliance becomes more structured:

  • Board of directors: Even small corporations must have at least one director (requirements vary by state).
  • Shareholder meetings: Annual meetings are required to elect directors and approve major business decisions.
  • Corporate minutes and records: Maintain formal written minutes of meetings and key resolutions.
  • Annual filings and fees: File annual or biennial reports with the state and pay any applicable franchise or corporate taxes.
  • Registered agent: Maintain a registered agent with a physical address in your state of incorporation.

Failure to follow these requirements could jeopardize liability protections or lead to administrative dissolution.

Frequently Asked Questions

  1. Can I switch back from C corp taxation to LLC taxation?
    Yes, but the IRS generally requires you to wait five years before changing your election.
  2. Does electing C corp taxation change my LLC’s legal structure?
    No, you remain an LLC legally but are taxed as a corporation for federal purposes.
  3. Is opening a C corp better for raising investment?
    Often yes—venture capital firms typically prefer C corps because they can issue multiple classes of stock.
  4. What is the biggest disadvantage of C corp status?
    Double taxation is the main drawback—profits are taxed at both corporate and individual levels when distributed as dividends.
  5. Do I need a lawyer to elect C corp status?
    It’s not legally required, but professional guidance helps ensure compliance with tax and corporate formalities.

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