Key Takeaways

  • An LLC can elect to be taxed as an S Corporation by filing IRS Form 2553 if it meets the IRS eligibility criteria.
  • The key distinction between an LLC and an S Corp lies in tax classification, not business structure—an S Corp is a tax status, not a separate entity type.
  • Both LLCs and S Corps offer liability protection and pass-through taxation, but S Corps may provide self-employment tax savings through salary and distribution structures.
  • LLCs offer more flexibility in ownership and management, while S Corps have stricter ownership rules and corporate formalities.
  • Understanding when to elect S Corp status can reduce tax burdens for profitable LLCs but may add administrative responsibilities.

Are you wondering, can an LLC be an S corp? An LLC can be an S Corp if the LLC elects S Corporation status with the IRS by filing Form 2553.

What Is an LLC?

The structure of an LLC gives the liability protection of a corporate structure to its members while also providing the tax benefits and flexibility of a general partnership or sole-proprietorship.

LLCs are a pass-through entity unless they choose tax status as a C Corporation (C Corp), meaning that profits pass through to the members or owners of the company and are subject to their individual taxes filed in their federal tax returns. 

This pass-through characteristic of LLCs protects profits from being taxed twice, once as the corporation's profits, and again as the individual profits. 

The LLC structure also protects the members from financial liabilities in the case that the business goes under. Owners and members of an LLC are only liable for whatever funds they put into the company, not the entire business debt as with a sole proprietorship or general partnership. 

An LLC can be a great option for business structuring due to the following benefits:

  • Protection from liability for owners or members.
  • Avoids double taxation on profits (if not elected to be a C Corp).
  • Easier operations with fewer filing requirements, costs for start-up, requirements for record keeping.
  • All profits of the LLC pass through to members as income under self-employment and are subject to self-employment tax.

What Is an S Corporation?

An S Corporation (S Corp) is not a business entity type but a special tax classification recognized by the IRS under Subchapter S of the Internal Revenue Code. This election allows a qualifying corporation—or an LLC that chooses S Corp status—to enjoy pass-through taxation, meaning profits and losses pass through to the owners’ personal tax returns rather than being taxed at the corporate level.

To qualify for S Corp status, the business must:

  • Have no more than 100 shareholders or members
  • Include only U.S. citizens or resident aliens as owners
  • Issue one class of stock or ownership interest
  • Be organized as a domestic entity
  • File Form 2553 with the IRS to elect S Corp taxation

While an LLC can choose to be taxed as an S Corp, its structure remains that of an LLC. The election only changes how the business is taxed—not how it is formed or managed.

How the IRS Views an LLC

The way an LLC is taxed depends on the structure agreed upon between the business entity and the IRS (Internal Revenue Service). 

The business owners can choose how they want their LLC to be viewed and taxed by the IRS. Options for taxation structure for an LLC include the following types:

  • C Corp — a corporation that is subject to taxation itself and the profits distributed to members are also subject to taxation.
  • S Corp — a corporation in which the members are taxed for the profits of the company even if the profits aren't distributed to the members.
  • Partnership — an LLC with more than one member or owner in which the members are taxed for the profits of the LLC, so the LLC itself is not subject to taxation.
  • Sole Proprietorship — an entity not separated from its owner (disregarded entity) so all of the profits and losses of the company are viewed as the profits and losses of the owner. This applies to single-owner or single-member LLCs. 

IRS Election Requirements for S Corp Status

The IRS allows an LLC to elect S Corporation taxation if it meets certain eligibility rules. To make the election, the LLC must first be classified as a corporation for tax purposes (by filing Form 8832), then file Form 2553, Election by a Small Business Corporation. This process must generally be completed:

  • Within 75 days of formation, or
  • No later than March 15 of the year the election is to take effect.

To qualify:

  1. The LLC must have no more than 100 owners.
  2. All members must be individual U.S. citizens or resident aliens (no corporations, partnerships, or foreign owners).
  3. The LLC must have only one class of ownership interest.
  4. It must adhere to S Corp accounting and reporting standards once elected.

Failure to meet these requirements could cause the LLC to lose its S Corp status, reverting to a standard LLC tax structure.

LLC Versus S Corp

As an individual prepares to either start a business or change the structure of their business, they'll first want to compare LLCs and S Corps. These structures have many similarities and differences.

Here are some characteristics that LLCs and S Corps have in common:

  • Both offer liability protection for their owners or members making sure that they are not held responsible for all business debt.
  • Both are treated legally as separate entities when filed with the state. 
  • Both are pass-through entities, meaning that they avoid double taxation on company profits. 
  • Both are under state requirements for annual filings and fees.

Here are some characteristics that LLCs and S Corps do not share:

  • S Corps are limited to 100 owners or shareholders, while LLCs can have unlimited owners or members.
  • Shareholders of S Corps must be citizens and residents of the United States, but members of LLCs may be non-citizens of the United States.
  • C Corps cannot own S Corps, as owners of S Corps must be actual individuals, but LLCs can be owned by other business entities. 
  • LLCs are not restricted in their subsidiaries.
  • S Corps are required to follow internal formalities like creating bylaws, distributing stock, holding annual meetings with minutes, and keeping corporate records. 
  • LLCs are encouraged, but not required to follow formalities like, filing an operating agreement, distributing member shares, keeping annual meetings, and logging major decisions made within the company. 
  • S Corps continue their entity existence, while LLCs usually have to file a dissolution date with their documents of formation and can dissolve with the loss of an owner or member.
  • S Corps have easy and free transformation of stock, while LLC members must vote and agree on any stock or ownership transfers.

Tax Benefits and Drawbacks of Electing S Corp Status

When considering whether to elect S Corp taxation, LLC owners should weigh both the potential benefits and limitations.

Advantages of S Corp election:

  • Self-Employment Tax Savings: Owners who work for the company can pay themselves a “reasonable salary” and take additional income as distributions, which are not subject to self-employment tax.
  • Avoiding Double Taxation: Like LLCs, S Corps are pass-through entities, meaning income is taxed only once—at the individual level.
  • Potentially Lower Audit Risk: S Corps may face less IRS scrutiny than sole proprietorships or partnerships when income is clearly divided between salary and distributions.

Drawbacks of S Corp election:

  • Increased Formalities: S Corps must maintain payroll, issue W-2s, and hold regular shareholder meetings with documented minutes.
  • Stricter Ownership Rules: Only individuals and certain trusts can be shareholders—no foreign owners or business entities allowed.
  • Reasonable Compensation Requirement: The IRS requires that owner-employees pay themselves a fair salary before taking distributions, which can increase administrative complexity.

An LLC taxed as an S Corp is often best suited for businesses that consistently earn profits beyond the owner’s reasonable salary—typically above $40,000 to $50,000 in net income annually.

Converting an LLC to an S Corp

LLCs must meet the following requirements before being able to elect S Corp status with the IRS:

  • It can't have more than 100 owners or members.
  • It can't have alien or nonresident owners or members.
  • All owners or members must be individual people, not business entities (except for nonprofits).

When an LLC Should Elect S Corp Status

Electing S Corp status may be beneficial when:

  • The LLC’s profits have grown enough to justify separating salary from distributions.
  • The owners want to reduce self-employment tax obligations.
  • The business has steady, predictable income suitable for payroll management.
  • The owners plan to retain profits rather than reinvest all of them in operations.

However, remaining a standard LLC may be better for:

  • Startups with variable or low profits.
  • Businesses with non-U.S. owners or complex ownership structures.
  • Owners who prefer minimal administrative requirements and flexibility in profit distribution.

Frequently Asked Questions

  1. Is an S Corp an LLC?
    No. An S Corp is a tax classification, not a business structure. An LLC can elect to be taxed as an S Corp, but it remains an LLC legally.
  2. Can a single-member LLC be an S Corp?
    Yes. A single-member LLC can file Form 2553 to be taxed as an S Corp, provided it meets all IRS eligibility requirements.
  3. Does S Corp status affect liability protection?
    No. Electing S Corp status does not affect the LLC’s liability protection. The LLC still shields its owners’ personal assets from business debts.
  4. How is an LLC taxed before becoming an S Corp?
    By default, a single-member LLC is taxed as a sole proprietorship, and a multi-member LLC as a partnership, with all income reported on the owners’ personal tax returns.
  5. Can an LLC switch back from S Corp taxation?
    Yes, but the process requires notifying the IRS. Once revoked, the LLC reverts to being taxed as a partnership or disregarded entity, depending on its structure.

If you need to know is an s corp an llc, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.