Why "how is my LLC taxed?" has more than one answer
An LLC is a state-law entity, not a federal tax entity. The IRS doesn't have a tax return called "LLC." When you file, you're filing as a sole proprietorship, a partnership, an S-corporation, or a C-corporation — whichever default or elected status applies to your LLC. Most owners don't realize this until they're staring at their first tax season wondering which form they owe.
The two defaults — Schedule C for single-member LLCs and Form 1065 for multi-member LLCs — cover the vast majority of small business owners. Picking the wrong one, or missing the deadline, costs real money. This article walks through what each return actually does, who files which, and the rules that trip people up.
Single-member LLC: you file Schedule C
If you're the only owner of your LLC, the IRS defaults to treating you as a "disregarded entity." That word sounds ominous but it just means the IRS ignores the LLC for income tax purposes and looks straight through to you. You file your business income and expenses on Schedule C (Profit or Loss From Business), attached to your personal Form 1040.
There is no separate business tax return. Your net profit from Schedule C flows to Schedule 1 of your 1040 and gets taxed at your personal income rate. You'll also file Schedule SE to calculate self-employment tax (15.3% on the first $176,100 of net earnings in 2025, and 2.9% Medicare on the rest, plus an extra 0.9% over $200,000 for single filers).
Multi-member LLC: you file Form 1065
The moment a second member joins your LLC, the federal default flips. Two or more owners means the IRS treats the LLC as a partnership, and partnerships file Form 1065 (U.S. Return of Partnership Income).
Form 1065 is an information return. The partnership itself doesn't pay federal income tax. Instead, the LLC files Form 1065, then issues a Schedule K-1 to each member showing that member's share of the income, deductions, and credits. Each member then reports their K-1 on their own Form 1040.
This pass-through structure is why people call partnerships "tax-neutral." But the filing burden is real, and missing it is expensive.
Authority: IRC §6698, adjusted annually for inflation
Triggers: Even with zero income or no tax due, unless the LLC had no income, deductions or credits at all
Plus K-1 penalty: $340 per K-1 not furnished or incorrect
Example: A 3-member LLC that files 4 months late owes $3,060 ($255 × 3 × 4) before any K-1 penalties
Schedule C vs Form 1065 side-by-side
Here's how the two filings actually differ in practice — what you report, when, and the penalty exposure if you miss the deadline.
Deadline: April 15
Self-employment tax: Yes, on Schedule SE
Issues K-1s?: No
Late penalty: Same as 1040 — 5% of unpaid tax per month, max 25%
If zero activity: Often no Schedule C required
Deadline: March 15
Self-employment tax: Yes, on each partner's 1040
Issues K-1s?: Yes, one per partner
Late penalty: $255 per partner, per month, up to 12 months
If zero activity: Not required only if no income, deductions or credits at all; any deductible expense means filing
The deadline gap that catches people
Read those two boxes again. The Schedule C deadline is April 15. The Form 1065 deadline is March 15 — a full month earlier.
This catches owners who switched from a single-member LLC to a multi-member LLC mid-year, or who added a partner without thinking about the filing implications. They calendar April 15 in their head and miss the March deadline by a month, which on a 3-member LLC is already $2,295 in penalties ($255 × 3 partners × 3 months) by the time they realize.
If you can't make the March 15 deadline, file Form 7004 by that date for an automatic 6-month extension to September 15. The extension is approval-free — the IRS doesn't ask why. But it must be filed on time, and an extension to file is not an extension to pay any tax owed by the partners on their personal returns.
Worked example — Maria's solo year vs Maria + her brother
Maria runs a contracting business out of Austin, Texas. In 2025 she earned $60,000 of net profit. She's a single-member LLC.
Net profit reported on Schedule C: $60,000
Self-employment tax (Schedule SE): $60,000 × 92.35% × 15.3% = $8,478
Federal income tax: calculated on her 1040 after the SE tax deduction
Deadline: April 15, 2026
Separate business return: None
Now suppose Maria brought her brother in as a 50% partner at the start of 2025 to handle larger jobs. The LLC is multi-member for the whole year. The same $60,000 of profit is split — but the filing burden multiplies. (Had he joined mid-year, Maria would report the income earned before his admission on her Schedule C, and the 1065 would cover only the period from his admission to year-end.)
Each partner's share: $30,000 of net income, reported on K-1
Self-employment tax per partner: $30,000 × 92.35% × 15.3% = $4,239
Each partner reports K-1 on their personal 1040
Partnership return deadline: March 16, 2026 (March 15 fell on a Sunday)
Personal 1040 deadline: April 15, 2026
If the 1065 is filed 2 months late: $255 × 2 partners × 2 months = $1,020 penalty
The total tax burden is similar between the two scenarios. What changes dramatically is the compliance burden — a partnership return, K-1s issued by March 15, and late-filing penalty exposure of up to $6,120 ($255 × 2 partners × 12 months), plus K-1 penalties, if anyone forgets.
The election option: when LLCs choose to be taxed as something else
The defaults aren't your only option. An LLC can elect to be taxed as a different entity by filing one of two forms.
What to do if you missed your deadline
If you blew past March 15 without filing or extending, file the 1065 immediately — every month costs $255 per partner. Three abatement paths exist: the Small Partnership Exception (Rev. Proc. 84-35) if you have 10 or fewer partners, each a natural person (not a nonresident alien) or an estate, each partner's share of every item is the same, and all partners fully reported their shares on timely filed returns; First-Time Abatement if your LLC has a clean three-year compliance history; and reasonable cause for events like natural disaster or serious illness. None are guaranteed. File first, abate second.
Common mistakes
- Confusing the deadlines. March 15 for partnerships, April 15 for sole proprietors. The penalty for swapping them is $255 per partner per month.
- Skipping Form 1065 because the LLC had no income. A multi-member LLC must file even with $0 of income if it had any deductions or credits; only a partnership with no income, deductions or credits at all is excused. The penalty applies to the failure to file, not to unpaid tax.
- Filing two Schedule Cs for a multi-member LLC in a non-community-property state. The IRS treats this as a misfiled partnership return. Either file Form 1065 or dissolve the LLC.
- Forgetting to issue K-1s. Each partner needs their K-1 by the partnership's filing deadline. Missing K-1s carry their own $340-per-form penalty separate from the late-filing penalty.
- Adding a partner mid-year without considering tax consequences. The day a second member joins, your single-member LLC becomes a partnership. The 1065 obligation begins on that date and covers the rest of that tax year; income earned before the admission stays on your Schedule C.
Frequently asked questions
Both, if you're a multi-member LLC. The LLC files Form 1065, which generates a Schedule K-1 for each member. Each member then reports their K-1 on their personal Form 1040. If you're a single-member LLC, you skip Form 1065 entirely and report business activity on Schedule C of your 1040.
Usually, yes. Form 1065 is an information return, and the filing requirement does not depend on profit. A multi-member LLC with $0 of income must still file Form 1065 by March 15 if it had any deductions or credits, such as ordinary business expenses. Only a partnership with no income, deductions or credits at all for the year is excused (Treas. Reg. 1.6031(a)-1(a)(3)). Failure to file a required return triggers the $255 per partner per month penalty regardless of income.
It depends on your state. In one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), a married-couple LLC owned only by the spouses as community property can be treated as a disregarded entity and reported on Schedule C instead of Form 1065 (Rev. Proc. 2002-69). In other states, the LLC defaults to a partnership and Form 1065 is required. The Qualified Joint Venture election under IRC §761(f) is not available for a business owned through an LLC, in any state.
Yes. File Form 2553 to elect S-Corp status. The election is generally due within 2 months and 15 days of the start of the tax year you want it to apply to. Most owners consider this once net profit consistently exceeds about $80,000–$100,000, where the self-employment tax savings outweigh the added payroll and compliance costs.
Both, for different parts of the year. Under Rev. Rul. 99-5, the LLC stays a disregarded entity until the new member is admitted, so you report the income earned before that date on your Schedule C. From the admission date, the LLC is a partnership and files Form 1065 for the period from that date to the end of the year, with a K-1 for each member. How the partner comes in (buying part of your interest or contributing money to the LLC) also has its own tax consequences.
$255 per partner, per month, for up to 12 months — even with $0 of income. A 3-member LLC that files 4 months late owes $3,060 ($255 × 3 × 4) plus $340 per missing K-1. The penalty is for late filing, not late payment, so zero income does not protect you.
For future years, yes. Dissolve the LLC with your state and file a final Form 1065 with the "final return" box checked. From that point forward, you and your co-owner can operate as separate sole proprietors filing Schedule Cs. But you still owe Form 1065 for every year the multi-member LLC existed and had income, deductions or credits, including its final year.
This article provides general information about US tax topics and is not a substitute for personalized advice from a qualified tax professional. Tax law changes frequently — verify current rules with a tax professional before filing or making decisions based on this content.
