An LLC is a state-law entity that gives its owners a liability shield while leaving federal tax treatment up to an election. Under the check-the-box regulations, a single-member LLC is disregarded by default (taxed like a sole proprietorship), and a multi-member LLC defaults to partnership taxation. Either can instead elect to be taxed as a C corporation on Form 8832 or as an S corporation on Form 2553. This flexibility is the LLC's core feature: the legal wrapper stays the same while the tax classification changes as the business grows. Because "LLC" describes the legal entity rather than the tax status, two identical LLCs can face very different tax bills depending on the elections they have made.
Limited Liability Company (LLC)
Primary authority: Treas. Reg. §301.7701-3
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The authority behind it
Treas. Reg. §301.7701-3
Every entry in this glossary cites the statute, regulation, or IRS guidance behind it.
Worked example
A single-member LLC earning $60,000 files on Schedule C with no separate return. Three years later, at $250,000 of profit, the same LLC files Form 2553 and is thereafter taxed as an S corporation, cutting self-employment tax without forming a new legal entity.
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Related terms
Disregarded Entity
A disregarded entity is a business entity with one owner that the IRS ignores for income tax purposes: its activity...
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S Corp Election (Form 2553)
The S corp election is the filing that turns an eligible corporation or LLC into an S corporation for federal tax...
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Partnership
A partnership is a business with two or more owners that is taxed under Subchapter K of the Internal Revenue Code.
Read the definition →
Sole Proprietorship
A sole proprietorship is the default tax treatment for one person doing business without an entity, or through a...
Read the definition →
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