LLC Taxes Explained: How Are LLCs Taxed in 2026?

Most people who form a business assume the entity itself pays taxes on its profits. With an LLC, that assumption is usually wrong — and misunderstanding this one point is what leads to the most expensive tax mistakes I see business owners make. So let’s answer the question directly: how are LLCs taxed? By default, the IRS doesn’t tax an LLC as its own entity at all. Instead, profits and losses “pass through” to the owners’ personal tax returns, where they’re taxed at individual rates. That’s the foundation everything else builds on — S-corp elections, self-employment tax, state franchise fees.

Here’s the part most beginner guides skip: an LLC isn’t actually a tax classification. It’s a legal liability shield created under state law. For federal tax purposes, the IRS lets you choose how that shield gets taxed — as a sole proprietorship, a partnership, an S-corporation, or a C-corporation. That flexibility is one of the biggest reasons LLCs have become the default structure for small businesses in 2026, and it’s why services like ZenBusiness build entire onboarding flows around helping new owners pick the right tax election from day one — their starter LLC formation package runs $0 plus state fees, with paid tiers ($199–$349 depending on the state and add-ons) that include EIN registration and a “worry-free compliance” service that flags tax deadlines automatically.

In this guide, we’ll walk through exactly how LLC taxes work for single-member and multi-member LLCs, when electing S-corp or C-corp status actually saves money, what self-employment tax really costs you, and how state-level taxes (looking at you, California) factor into the total bill. If you haven’t formed your LLC yet, it’s worth reading our breakdown of what an LLC actually is first, since the tax rules only make sense once you understand the entity itself.

How Are LLCs Taxed? The Pass-Through Basics

The IRS calls this “pass-through taxation,” and it’s the default treatment for every LLC unless you file paperwork to change it. Instead of the business paying corporate income tax and then owners paying tax again on dividends (the dreaded “double taxation” that C-corporations face), LLC profits pass through directly to the owners’ individual tax returns and are taxed once, at their personal income tax rate.

The IRS’s own guidance on LLC classification confirms that an LLC is treated as a “disregarded entity” for single owners, or a partnership for multiple owners, unless the owners affirmatively elect corporate treatment by filing Form 8832 or Form 2553. This is the single most important structural fact to understand: the entity itself is invisible to the IRS by default. You are the taxpayer.

Here’s a simplified rundown of your four options:

Tax Classification	Who Pays	Files With IRS
Sole Proprietorship (default, single-member)	Owner, on Schedule C	Form 1040
Partnership (default, multi-member)	Each partner, on their share	Form 1065 + Schedule K-1
S-Corporation (elected)	Owner(s), salary + distributions	Form 1120-S
C-Corporation (elected)	The LLC itself, then owners on dividends	Form 1120

I’ve seen plenty of new business owners assume that forming an LLC automatically means filing a separate business tax return. For most single-member LLCs, that’s simply not true — and not knowing it leads people to overpay accountants for returns they didn’t need, or worse, to miss the fact that their “business taxes” are just a form attached to their personal return.

Single-Member LLC Taxes: You and the Business Are One

If you’re the sole owner of your LLC and haven’t elected corporate tax treatment, the IRS treats your business as a “disregarded entity.” In plain English: for tax purposes, there’s no separation between you and the LLC. Your business income and expenses get reported on Schedule C, which attaches to your personal Form 1040.

Say your LLC brings in $120,000 in revenue and has $40,000 in deductible expenses (software, contractor payments, home office, mileage). Your net profit is $80,000, and that entire amount flows onto your personal return as taxable income — regardless of whether you actually withdrew that cash from the business bank account. This trips people up constantly: LLC taxes are based on what the business earned, not what you paid yourself.

That $80,000 is also subject to self-employment tax, which we’ll cover in detail below, on top of ordinary federal and state income tax. This combination is exactly why so many profitable single-member LLC owners eventually look at electing S-corp status once profits climb past roughly $60,000–$80,000 a year — a threshold we’ll break down with real numbers in a moment.

Multi-Member LLC Taxes: Partnership Rules and Schedule K-1s

Add a second owner, and the IRS defaults you into partnership taxation. The LLC itself still doesn’t pay federal income tax, but it does have to file an informational return — Form 1065 — that reports total income, deductions, and each member’s share of the profit or loss.

Each member then receives a Schedule K-1 showing their allocated share, which they report on their personal Form 1040. If you and a business partner split ownership 60/40, and the LLC nets $200,000, you’d report $120,000 and your partner would report $80,000, each paying tax at their own individual rate — even if the LLC’s operating agreement structured a different cash distribution schedule.

This is where an LLC operating agreement becomes more than boilerplate paperwork. Profit and loss allocations don’t have to match ownership percentages exactly (the IRS allows “special allocations” under certain conditions), but if your agreement is vague or nonexistent, you’re inviting a dispute — or an audit — down the road. In my experience, this is the single most common gap I find when reviewing multi-member LLCs: two founders split ownership evenly on a handshake, never formalize an allocation method in writing, and then argue about it three years later when the business is actually profitable.

LLC Taxed as an S-Corp: The Self-Employment Tax Workaround

This is where things get genuinely strategic. An LLC can elect to be taxed as an S-corporation by filing Form 2553 with the IRS, without changing its legal structure at all — you’re still an LLC for liability and state law purposes, but the IRS taxes you as if you were an S-corp.

Why bother? Self-employment tax. Under default LLC taxation, 100% of your net profit is subject to a 15.3% self-employment tax (12.4% for Social Security, up to the annual wage base the SSA adjusts each year, plus 2.9% for Medicare with no cap). Under an S-corp election, you become an employee of your own business. You pay yourself a “reasonable salary” through payroll — subject to the same 15.3% payroll tax split between employer and employee — but any remaining profit distributed to you as an owner is not subject to self-employment tax at all.

Let’s run the numbers on our earlier $80,000 net profit example. As a default single-member LLC, you’d owe roughly $11,300 in self-employment tax (15.3% on 92.35% of net earnings, per IRS Schedule SE rules). Elect S-corp status, pay yourself a reasonable salary of $50,000, and take the remaining $30,000 as a distribution, and only the $50,000 salary is subject to payroll tax — around $7,650 — saving you roughly $3,600 a year. Scale that up to $150,000 in profit and the savings often exceed $8,000–$10,000 annually.

The catch — and this is where a lot of “just elect S-corp status” advice online gets dangerously oversimplified — is that “reasonable salary” isn’t optional or arbitrary. The IRS actively audits S-corp owners who pay themselves an artificially low salary specifically to dodge payroll tax, and penalties for reclassifying distributions as wages after the fact include back taxes, interest, and penalties. You also take on real costs the default LLC doesn’t have: payroll processing (typically $40–$150/month), a separate S-corp tax return (Form 1120-S, often $500–$1,200 if you hire a CPA), and stricter bookkeeping requirements. As a rule of thumb, most CFOs I’ve worked with don’t recommend the S-corp election until net profit is consistently above $60,000–$80,000 a year, because below that, the added compliance cost eats most or all of the self-employment tax savings.

If you’re weighing this decision, our detailed comparison of LLC vs. S-corp for tax purposes walks through break-even math in more depth, and our broader LLC vs. S-corp explainer covers the non-tax tradeoffs too. Worth noting: ZenBusiness and LegalZoom both offer S-corp election filing as an add-on service (ZenBusiness bundles it into its Pro and Premium plans; LegalZoom charges separately, typically around $100 on top of its Pro plan pricing), which can be worthwhile if you’d rather not file Form 2553 yourself.

LLC Taxed as a C-Corp: When (and Why) It Makes Sense

This is the least common election for small LLCs, and for good reason: C-corp status brings back the double taxation the LLC structure was designed to avoid. The business itself pays a flat 21% federal corporate income tax rate (set by the Tax Cuts and Jobs Act and still in effect for 2026), and then any dividends paid out to owners are taxed again on their personal returns.

So why would anyone choose it? A handful of legitimate scenarios: you’re planning to raise venture capital and investors specifically want C-corp stock structures, you want to retain significant earnings inside the business rather than distributing them (the 21% flat rate can beat individual rates for owners in the top tax brackets), or you’re building toward an eventual IPO or acquisition where a C-corp structure simplifies the cap table. Outside of those cases, most small business owners electing C-corp status for their LLC are solving a problem they don’t actually have.

One nuance worth understanding for 2026: the Qualified Business Income (QBI) deduction under Section 199A — which lets many pass-through LLC owners deduct up to 20% of their qualified business income — was made a permanent feature of the tax code by legislation passed in 2025, after years of uncertainty about whether it would expire. According to the IRS’s QBI deduction guidance, this remains one of the most valuable tax breaks available to pass-through entities, and it’s only available to LLCs taxed as sole proprietorships, partnerships, or S-corps — not C-corps. That alone is enough reason for most profitable small LLCs to stay away from C-corp election unless there’s a specific strategic reason to convert.

Self-Employment Tax, Quarterly Payments, and State LLC Taxes

Two more pieces complete the picture of how these obligations actually play out in practice.

Self-employment tax and quarterly estimates. Because pass-through LLC income isn’t subject to payroll withholding the way a W-2 job is, the IRS expects you to pay estimated taxes four times a year using Form 1040-ES if you expect to owe $1,000 or more. Miss a quarter, and the IRS charges an underpayment penalty calculated using the current federal short-term interest rate plus 3 percentage points — it’s not a flat fee, and it compounds the longer you wait. Our quarterly tax payment guide breaks down the exact due dates and how to calculate your safe-harbor amount, and our deeper self-employment tax guide covers deduction strategies most owners miss, including the deduction for half of your self-employment tax and the home office deduction.

State-level taxes. Federal pass-through treatment doesn’t mean you’re off the hook at the state level. California charges every LLC an $800 annual franchise tax regardless of profitability — our guide to the California LLC $800 franchise tax covers the (limited) exemptions. Texas has no personal income tax but imposes a franchise tax on LLCs with revenue above roughly $2.47 million (see our breakdown of the Texas LLC franchise tax); Delaware charges a flat $300 annual LLC tax. A handful of states, including Wyoming, Nevada, and South Dakota, have no state income tax and comparatively low annual fees, which is why they’re popular for LLC formation — though forming in a state where you don’t actually do business usually just adds foreign-qualification paperwork without any real tax benefit. The Small Business Administration’s guide to choosing a business structure is a solid neutral starting point if you’re still deciding between an LLC and other entity types before tax considerations even enter the picture.

Between federal self-employment tax, potential S-corp payroll costs, and state franchise fees, the total tax picture for an LLC in 2026 involves more moving pieces than most first-time owners expect — which is exactly why getting the formation and tax election right from the start matters more than people assume. Comparing options like ZenBusiness against LegalZoom — see our full ZenBusiness vs. LegalZoom comparison — is worth doing before you file, since your formation service can also handle your registered agent, EIN, and (for an added fee) your S-corp election paperwork in one pass.

Frequently Asked Questions About LLC Taxes

How much are LLC taxes, on average? There’s no flat “LLC tax rate” — it depends entirely on your tax classification and income. A single-member LLC owner in the 22% federal tax bracket with $80,000 in net profit will typically pay somewhere between $20,000–$25,000 total in federal income tax and self-employment tax combined, before deductions like the QBI deduction reduce that further. State taxes add on top.

Do LLCs pay federal income tax as a business entity? Not by default. Pass-through taxation means the LLC itself doesn’t file or pay federal income tax — profits pass through to the owners’ personal returns. Only LLCs that elect C-corp taxation pay corporate income tax directly, currently at a flat 21% federal rate.

Can an LLC choose how it’s taxed? Yes. This is one of the biggest advantages of the LLC structure. By default, single-member LLCs are taxed as sole proprietorships and multi-member LLCs as partnerships, but any LLC can elect S-corp taxation (Form 2553) or C-corp taxation (Form 8832) if it benefits the owners.

What is the LLC tax rate in 2026? Since LLCs are typically pass-through entities, “the LLC tax rate” is really your individual federal income tax rate (10%–37% depending on your bracket) plus the 15.3% self-employment tax on earned income, plus whatever your state charges. There’s no single number that applies to every LLC.

Do I still owe self-employment tax if my LLC loses money? No. Self-employment tax is calculated on net profit. If your LLC has a net loss for the year, you generally owe no self-employment tax, and that loss may be deductible against other income depending on your basis and at-risk limitations — a scenario worth reviewing with a tax professional.

Does my LLC need to file taxes if it made no money? Single-member LLCs with zero activity often don’t need to file a separate Schedule C, though many CPAs recommend filing anyway to document the loss. Multi-member LLCs generally must still file Form 1065 even in a zero-income year, since it’s an informational return, not just a tax bill.

When are LLC taxes due in 2026? Personal returns reporting pass-through LLC income are due April 15, 2026 (for the 2025 tax year), with an extension available to October 15. Partnership returns (Form 1065) and S-corp returns (Form 1120-S) are due March 15, 2026. Quarterly estimated tax payments are generally due mid-April, mid-June, mid-September, and mid-January.

Should I elect S-corp status for my LLC? It depends on profit level and your appetite for added payroll and compliance complexity. As a general guideline, the self-employment tax savings from an S-corp election typically don’t outweigh the added costs (payroll processing, a separate tax return, reasonable-salary compliance) until net profit is consistently above roughly $60,000–$80,000 a year. Below that, staying with default LLC taxation is usually simpler and just as cost-effective.

Getting your LLC’s tax classification right from the start — and revisiting it as your profit grows — is one of the few decisions that genuinely compounds over time. If you’re still in the formation stage, start with a provider that makes the election process straightforward: ZenBusiness is our top pick for most new owners for its transparent pricing and built-in compliance reminders, with LegalZoom a strong second option if you want bundled attorney access. Either way, pair whatever formation service you choose with a licensed CPA or tax attorney before you file an S-corp or C-corp election — the paperwork is simple, but the underlying math is specific to your numbers, not a template.

The author name used in this article may be a pen name or pseudonym and is used for illustrative and editorial purposes only. This article is for informational purposes only and does not constitute investment, tax, or legal advice. Tax laws and thresholds referenced here (including rates, deductions, and filing deadlines) are subject to change and may vary by individual circumstance and state. Consult qualified professionals — a licensed CPA or tax attorney — before making financial decisions or elections that affect your LLC’s tax treatment.