Q: I want to set up an LLC with C-corp tax status. How does that work?
Thank you to a customer for that great question! To set up an LLC taxed as a C-corp, you’ll need to first form the LLC and then apply for C-corp status with the IRS. Many of our clients ask about the benefits of C-corp status and how to apply for it, so we decided to address this topic in a blog post.
What is a C-corp?
While many people refer to a C-corp as a business structure, it’s actually a tax classification for businesses, not a business in itself. C-corp is the default tax classification for corporations, but LLCs can also elect to be taxed as C-corps. A C-corp is subject to double taxation, which means that the business pays corporate income tax and the shareholders are also taxed on their dividends. However, C-corps are eligible for a wider range of tax deductions than businesses taxed as S-corps or partnerships, so it can be a good option for some business owners.
How do I get C-corp status as an LLC?
To apply for C-corp status, you must complete Form 8832 and mail it to the IRS. Here’s the information you’ll need to provide:
- LLC name
- Business address
- Business phone number
- EIN (Employer Identification Number)
- Owner’s name and social security number (if there is only one owner)
- Name and EIN of parent corporation (if applicable)
- Tax classification choice—check the box “electing to be classified as an association taxable as a corporation”
- Country of origin, if the business was formed outside the United States
- Effective date (when the LLC’s C-corp status will go into effect)
- Contact name and phone number
- Signatures of all members, or the signature of one member who has prior written approval from all other members
How long will the IRS take to approve my application?
The IRS typically takes around 60 days to process Form 8832. Once they’ve processed your form, they’ll mail you an acceptance letter (or a denial letter if something went wrong).
What are the advantages of being taxed as a C-corp?
Electing to be taxed as a C-corp is somewhat uncommon for LLCs, but depending on your business, it could be a smart move. Here are some potential benefits:
- C-corps are eligible for greater tax deductions than LLCs taxed as S-corps or partnerships, including deductions for life insurance, health care, and retirement plans.
- As an active owner of a C-corp, you can be considered an employee and have your earnings taxed as wages rather than dividends.
- Venture capitalists and private equity investors more frequently invest in C-corps and face fewer legal restrictions in doing so.
Whether electing C-corp status makes financial sense for you will depend on the specifics of your business. We recommend consulting a CPA or tax attorney before you take this step.
Considering other options? Check out What to Know about Filing as an S-corp.