Written & reviewed by NotALawyer Review AI · Updated June 26, 2026
By default, the IRS doesn't tax an LLC as its own thing — it 'passes through' to the owners. A single-member LLC is taxed like a sole proprietorship, and a multi-member LLC is taxed like a partnership, so the profits land on the owners' personal returns and the LLC itself usually pays no separate income tax. You can also elect to have your LLC taxed as an S corporation or C corporation if that fits your situation. Owners typically owe self-employment tax on their share of the profit, and state-level taxes vary.
Out of the box, a single-member LLC is a 'disregarded entity' taxed like a sole proprietor and reported on your personal return, while a multi-member LLC is taxed like a partnership. In both cases the business profit flows to the owners and is taxed once, on their individual returns.
Because pass-through profit is treated as self-employment income, active LLC owners generally owe self-employment tax — the Social Security and Medicare portion — on their share, on top of regular income tax. Setting money aside for it through the year keeps tax season from becoming a surprise.
An LLC can file an election to be taxed as an S corporation or a C corporation instead of the default. Some owners choose S-corp treatment to change how much profit is subject to self-employment tax, but it adds payroll and filing requirements. Whether it actually saves money depends on the specifics — a tax professional can run the numbers.
On top of federal rules, some states impose their own LLC taxes, franchise taxes, or annual fees, and a few states have no personal income tax at all. How your LLC's profit is taxed at the state level depends on where you registered and operate — check your state's tax authority.
Say a two-person LLC clears $80,000 in profit. By default it's taxed like a partnership: each owner reports their share on their personal return and owes income and self-employment tax on it, while the LLC itself doesn't pay a separate federal income tax on that profit.
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