Key Takeaways

  • The IRS uses Form W-9 to collect taxpayer information, including the LLC’s federal tax classification (sole proprietor, partnership, C-corp, or S-corp).
  • Single-member LLCs are usually taxed as disregarded entities, while multi-member LLCs default to partnership status unless they elect corporate taxation.
  • To change the default classification, LLCs must file Form 8832 (C-corp election) or Form 2553 (S-corp election).
  • The tax classification determines how the LLC reports income and which tax forms it files annually.
  • Understanding the right classification for your LLC can reduce your tax liability and ensure compliance with IRS regulations.
  • Always consult a tax professional or attorney before selecting or changing your LLC’s tax status—experienced attorneys can be found on UpCounsel.

LLC classification W9 can be confusing. Typically, employers use a W-9 for financial reporting purposes, which includes non-employee income, income from mortgage interest, and determining the cancellation of debt.

Filling out a W9

Filling out the form can be very easy and is similar to filling out a W-4. However, when it comes to a member of an LLC completing it, it can be tricky.

Filling in the correct information prevents issues with the IRS. If you are a member or owner of an LLC and are filling out IRS Form W-9 for the first time, you may have difficulty with the section near the beginning of the W-9.

Here is a guide to help you navigate:

  • Go to the part that says “Check appropriate box for federal tax classification.” There you will see the following options: sole proprietor, C Corporation, S Corporation, Partnership, Trust/estate, Limited liability company, and Other.
  • If your LLC choose S corporation for its tax status – this is accomplished by filing Form 2553 with the IRS – then your tax status is “S Corporation.” You would then check “Limited Liability Company” box and fill in “S” (for S Corporation) in the blank to the right.
  • If your LLC choose C corporation as its tax status – this is accomplished by filing Form 8832 with the IRS – then your tax status is “C corporation.” Similar to above, you would check “Limited Liability Company” box and fill “C” in the blank to the right.

What if your LLC did not file the above-mentioned forms with the IRS? In that instance, the following default rules are applicable to your situation:

  • If your LLC is a single-member LLC, then its default tax status becomes a disregarded entity. That is, a disregarded entity is a business considered separate from its owner for legal purposes (e.g. owner has limited liability in a lawsuit) but not for taxation. This means that with respect to taxation, it will be treated as a sole proprietorship that has flow-through taxation.
  • To complete this part of the W-9, provide your name in the name block, the LLC’s name in the business name block, the LLC’s physical address in the address block, and then find the box labeled: “Individual/sole proprietor” and check it off.
  • If your LLC has two or more owners, then its default tax status becomes “partnership.” If so, you should check LLC box and fill in the blank with P (for Partnership).
  • Where the LLC is owned by a business, e.g. a different LLC, the above should be disregarded. It is recommended that you consult with a tax professional like an accountant or tax attorney for further guidance.

Understanding LLC Tax Classification on a W-9

Your LLC tax classification determines how your business income is reported to the IRS on the W-9. The IRS doesn’t recognize an LLC as a distinct tax entity, so every LLC must select how it will be taxed. On the form, you must check the box that corresponds to your federal tax classification—sole proprietor, C corporation, S corporation, or partnership.

Here’s what this means:

  • Single-member LLC (SMLLC): The IRS disregards the entity for tax purposes and treats it as a sole proprietorship. The owner reports income on Schedule C of their individual Form 1040.
  • Multi-member LLC: The IRS classifies it as a partnership by default, requiring Form 1065 for annual returns.
  • LLC electing C-corp status: Must file Form 8832 to be taxed under Subchapter C of the Internal Revenue Code and submit Form 1120 annually.
  • LLC electing S-corp status: Must file Form 2553 within 75 days of formation (or the start of a new tax year) and submit Form 1120-S annually.

Each choice affects how profits are distributed, how self-employment tax applies, and what documentation accompanies your W-9.

LLC Classifications Under a W-9

An LLC can be classified in several ways with respect to federal tax treatment.

  • Some require that the LLC members elect tax treatment by filing certain forms with the IRS.
  • Other LLCs are classified based on their hypothetical default tax treatment, which, as mentioned, is dependent on the number of LLC members.

How the IRS Determines Default LLC Tax Status

When you form an LLC, the IRS automatically assigns it a default tax classification based on the number of members.

  • A single-member LLC defaults to a disregarded entity taxed like a sole proprietorship.
  • A multi-member LLC defaults to a partnership, which files Form 1065 and issues Schedule K-1 to members.

If you prefer corporate taxation, you can elect a new classification using IRS Form 8832 (for C-corp) or Form 2553 (for S-corp). Once filed, this election remains in effect until changed again with IRS approval.

Changing classification can influence how your income is taxed, your eligibility for certain deductions, and how you manage payroll and distributions. For instance:

  • Electing S-corp status allows members to pay themselves a “reasonable salary” while taking remaining profits as distributions—reducing self-employment taxes.
  • Choosing C-corp status can benefit companies that plan to reinvest profits or seek outside investors due to favorable flat tax rates.

Understanding these distinctions helps you choose the classification that minimizes taxes while maintaining compliance.

S Corporation

This is applicable when an LLC elects to be taxed as an S Corporation. These tax rules are found under Subchapter C of the Internal Revenue Code. The rules require that corporate profits are taxed at the corporate level prior to distribution to the owners. The owner’s earnings will be taxed again, or suffer from double taxation. Double taxation is a problem for many small businesses.

If elected to be taxed as a S Corporation, the rules are similar to C Corporation taxation. The LLC must fill the proper form with the IRS within 75 days of business formation. If the company was formed more than 75 days ago but is switching its tax scheme, it has 75 days from the beginning of the new tax year to file the proper form with the IRS.

Note that S-corporations will file Form 1120S regarding reporting income and expenses.

LLC Taxation as a C Corporation

If your LLC elects to be taxed as a C corporation, it becomes subject to corporate income tax under Subchapter C of the Internal Revenue Code. This means the company pays tax on profits at the corporate level, and members pay tax again on dividends—commonly known as double taxation.

Despite the double taxation, some businesses prefer the C-corp election because:

  • The corporate tax rate is fixed at 21%, which can be advantageous for high-earning companies.
  • Profits can be retained and reinvested within the business without immediate tax on owners.
  • It can make raising capital easier through issuing shares.

LLCs choosing this structure must file Form 8832 with the IRS and Form 1120 annually. Keep in mind that C-corp LLCs may also face state corporate taxes depending on jurisdiction.

Disregarded Entity

As mentioned, disregarded entities are companies that for tax purposes do not distinguish between the owner on a personal level what the business is doing. Basically, you are self-employed. If your LLC’s structure is a disregarded entity, do not fill in anything on the LLC classification line; instead, check the “Individual/Sole Proprietor” box.

Choosing the Right LLC Tax Classification

Selecting the correct LLC tax classification depends on your business goals, size, and growth plans. Consider the following when deciding:

  • Administrative burden: Disregarded entities are simplest to manage, while corporations require more complex filings.
  • Self-employment taxes: S-corps allow owners to take part of their income as distributions, potentially lowering self-employment tax liability.
  • Investment needs: If you plan to seek venture capital or issue stock, C-corp classification is often better suited.
  • Profit reinvestment: C-corps allow retained earnings without immediate taxation at the owner level.

Consulting a tax professional or business attorney can help ensure your election aligns with both your financial goals and compliance requirements. You can find qualified legal counsel for LLC formation and tax matters on UpCounsel’s marketplace.

Frequently Asked Questions

  1. What is the best LLC tax classification for small businesses?
    It depends on your income, number of members, and business goals. Most small LLCs default to sole proprietorship or partnership taxation, but S-corp status can reduce self-employment taxes for profitable businesses.
  2. How do I change my LLC’s tax classification?
    File Form 8832 to elect C-corp status or Form 2553 to elect S-corp status. Submit these within 75 days of formation or the start of the next tax year.
  3. What happens if I pick the wrong classification on Form W-9?
    The IRS may flag mismatched taxpayer information, leading to reporting delays or penalties. Always ensure your W-9 reflects your most current IRS election.
  4. Do LLCs have an EIN regardless of classification?
    Yes. Every LLC needs an Employer Identification Number (EIN) to complete Form W-9, regardless of how it is taxed.
  5. Can I switch from S-corp back to default LLC taxation?
    Yes, but you must notify the IRS and file the appropriate forms. Once changed, another election may be restricted for several years unless approved by the IRS.

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