For federal tax classification purposes, a business is classified as either a "business entity," which is any entity recognized for federal tax purposes; or a "disregarded entity," which is any entity not recognized or treated separate from its owner for tax purposes. The most common federal tax business entities include a C-Corporation, S-Corporation, and Partnership. Various rules under the Internal Revenue Code determine how a business is treated for federal tax purposes.
The default tax classification for a corporate entity is a C-Corporation. Alternatively, a corporation can elect to be taxed as an S-Corporation by filing Form 2553 with the IRS and meeting certain requirements.
A single-member limited liability company is the only state-formed entity eligible to be classified as a disregarded entity; this is the default classification. The one exception is where a business is owned equally by a husband and wife in a community property state; this business can also be treated as a disregarded entity. A single-member LLC can also elect to be taxed as a C-Corporation by filing Form 8832 with the IRS; alternatively, it can elect to be taxed as an S-Corporation by filing Form 2553.
The default tax classification for non-corporate, multi-member legal entities (including LLCs and state-law partnerships) is a partnership. A multi-member business may elect to be taxed as a C-Corporation or an S-Corporation in the same manner as a single-member LLC. One of the prerequisites for S-Corporation status is a single class of interest, disregarding differences in voting rights; multi-member LLCs with one class of interest or general partnerships can meet the requirements to be treated as an S-Corporation.
The following chart summarizes these rules:
| Corporation | Single-Member LLC | Multi-Member Eligible Entity | |
| Disregarded | No | Yes | No* |
| Partnership (Form 1065) | No | No | Yes |
| C-Corporation (Form 1120) | Yes | Yes | Yes |
| S-Corporation (Form 1120S) | Yes | Yes | Yes** |
*A business owned equally by a husband and wife in a community property state can be treated as a disregarded entity.
**Only certain entities, such as multi-member LLCs with one class of interest and general partnerships, can qualify for S-Corporation status.
4 comments:
The schedule is not very well orgainized on slecting the catory that your business is.
Chris
Owner
CEL Financial Services
Tax Return Preparer
http://directory.wfaa.com/biz/cel-financial-services-fillmore-income-tax-preparation/fillmore/ca/93015/40261586
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