Single-Member LLC Taxes: 3 Paths, 1 Form, 0 Confusion

The three paths

Tax treatment	Form filed	Who uses it
Disregarded entity (default)	Schedule C on your 1040	Most solo LLCs
S-Corp election	Form 1120-S (separate return)	Profitable solo LLCs $80k+
C-Corp election	Form 1120 (separate return)	Very rare for solos; VC-backed startups

Path 1: Disregarded entity (default)

By default, the IRS "disregards" your SMLLC for tax purposes and treats the business activity as if you were a sole proprietor. You file:

• Schedule C (on your 1040) — reports business income and expenses
• Schedule SE — calculates self-employment tax
• Form 8829 (if claiming home office with actual method)

No separate business return. No separate EIN required (though recommended). The LLC has legal protection but not tax complexity.

Tradeoffs

• ✅ Simplest filing
• ✅ No payroll required
• ✅ All retirement plans available (SEP, Solo 401k, DB plan)
• ❌ All net profit subject to 15.3% SE tax up to SS wage base
• ❌ No FICA-savings optimization

Path 2: S-Corp election

File Form 2553 to have your SMLLC taxed as an S-Corporation. This doesn't change the legal entity — it's still an LLC under state law. But the IRS now treats it like a corporation with pass-through taxation.

You'll file:

• Form 1120-S (separate S-Corp return) — due March 15
• Schedule K-1 from 1120-S flowing to your personal return
• Form 1040 with Schedule E Part II reporting the K-1 income
• Payroll tax returns (941/940) quarterly/annually
• W-2 for your own wages to yourself

Tradeoffs

• ✅ FICA savings on distributions (meaningful at $80k+ profit)
• ✅ Access to accountable plan reimbursements
• ❌ $1,500–$4,500/year in additional overhead
• ❌ Payroll administration required
• ❌ Must set a "reasonable salary" (audit risk if too low)
• ❌ Some states have S-Corp franchise taxes (CA = $800/yr)

Full break-even analysis.

Path 3: C-Corp election

File Form 8832 to elect corporate tax treatment for your SMLLC. You become a C-Corp — subject to corporate income tax (21% federal flat rate) plus individual tax on any dividends you take.

When it (rarely) makes sense

• You want to keep significant profits in the business (not take them out)
• You plan to raise venture capital (investors want C-Corp)
• You want specific C-Corp benefits (employer-provided health, fringe benefits, qualified small business stock)
• You're positioning for an acquisition or IPO

Tradeoffs

• ✅ Lower corporate tax rate (21%) if retaining earnings
• ✅ Full fringe benefit deductibility
• ✅ Qualified Small Business Stock (QSBS) potential — $10M+ gain exclusion if sold after 5 years
• ❌ Double taxation on dividends
• ❌ More complex filings
• ❌ Harder to unwind later
• ❌ No pass-through losses (losses stay at the corporate level)

For 99% of solo LLCs, C-Corp is the wrong choice. If you're considering it, consult a tax attorney — the stakes are high and the reasoning context-specific.

What happens if you do nothing

If you form an SMLLC and never file Form 2553 or Form 8832, the IRS defaults you to disregarded. You file Schedule C on your 1040. This is fine for most people.

There's no "annual election" needed for disregarded — it's the default state and persists indefinitely.

Switching between paths

Disregarded → S-Corp

File Form 2553 by March 15 (or the deadline applicable to the fiscal year). Details here.

Disregarded → C-Corp

File Form 8832. This is a "check-the-box" election.

S-Corp → Disregarded

Revoke the S election. 5-year waiting period before you can re-elect.

C-Corp → S-Corp

File Form 2553. But built-in gains tax may apply to appreciated assets for 5 years after.

C-Corp → Disregarded

File Form 8832. This is a "deemed liquidation" — triggers tax on any gain on the corporate assets. Often expensive.

The decision tree

1. Net profit under $60k? → Disregarded. Done.
2. Net profit $60k–$80k? → Probably disregarded; run the math if you're curious.
3. Net profit $80k+ consistently? → S-Corp.
4. Planning to raise VC or sell for $10M+? → Talk to a tax attorney about C-Corp + QSBS.