How the IRS Taxes Your LLC, Step by Step

Your state makes your LLC real. The IRS decides how it is taxed. Here is the default classification, the EIN rules and what comes after.

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Filed 2026-10-18

Your LLC exists because your state says it does. But the IRS decides how it is taxed. The IRS treats an LLC as a corporation, a partnership, or as part of its owner's tax return. Which one applies to you depends on your member count and any elections you make.

The sequence matters. Form the LLC with your state first. Then learn your default tax classification. Then decide whether you need an EIN. Then apply. Then handle what comes after. Skipping the state filing may delay your EIN application.

How the IRS classifies an LLC

The IRS says a Limited Liability Company is a business structure allowed by state statute.

For taxes, an LLC lands in one of three buckets. It can be taxed as a corporation. It can be taxed as a partnership. Or its income can simply flow onto the owner's return.

The IRS says most states do not restrict LLC ownership. Members may include individuals, corporations, other LLCs and foreign entities. Most states also permit single-member LLCs, those having only one owner.

Single-member LLCs and the disregarded entity default

Is a single-member LLC a disregarded entity? Usually, yes. The IRS says a single-member LLC that does not elect to be treated as a corporation is a disregarded entity.

That means the IRS ignores the LLC as a separate taxpayer for income tax. Its activities should be reflected on its owner's federal tax return.

There is one big exception. A single member LLC is still considered a separate entity for employment tax and certain excise taxes. So the LLC is ignored for income tax but not for everything.

Want out of the default? A single-member LLC can elect to be treated as a corporation by filing Form 8832.

Self-employment tax and married co-owners

The SBA guide says members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security. Plan for it.

There is a husband-and-wife wrinkle. Rev. Proc. 2002-69 addressed classification for an entity solely owned by husband and wife as community property. A business entity is a qualified entity if it is wholly owned by a husband and wife as community property.

An LLC owned by a husband and wife in a non-community property state should file as a partnership. And LLCs owned by a husband and wife are not eligible to be qualified joint ventures, because they are state law entities. If you are married and co-own an LLC, ask a tax pro which rule fits your state.

When your LLC needs an EIN

Your Employer Identification Number is your business's federal tax ID number. Does your LLC need one?

The IRS says an LLC will need an EIN if it has any employees or must file any excise tax forms. You generally need an EIN to hire employees. You generally need one to pay sales and excise taxes. You generally need one to change business structures or ownership.

What about a new single-member LLC? The IRS says most new single-member LLCs classified as disregarded entities will need to obtain an EIN.

But there is a narrow case with no EIN required. A single-member disregarded LLC with no employees and no excise tax liability does not need an EIN.

How to apply for an EIN for free

Here is the step that trips people up. The IRS says to form your corporation or LLC through the secretary of state before you apply for an EIN. Your EIN application may be delayed if you don't form your entity with the state first.

So the order is: file with the state, then apply. Kentucky owners can check the state's LLC filing fees to see what forming costs there.

Does it cost money to get an EIN? No. The IRS says you can get an EIN directly from the IRS in minutes for free. You never have to pay a fee for an EIN. The SBA's guide says do not apply for an EIN on websites that charge a fee. Those sites exist. They sell something the IRS gives away.

An LLC applies for an EIN by filing Form SS-4. A few rules for the online tool:

You can apply for only one EIN per responsible party per day.
You must complete the application in one session and cannot save it for later.
The application expires after 15 minutes of inactivity, and then you must begin again from scratch.
You need the Social Security number or taxpayer ID number of the responsible party in control of your business.
A third-party designee must have signed authorization to apply.

When you finish, print your EIN confirmation letter for your records. If you can't apply online, you can apply by phone, fax or mail.

The SBA's guide says you should apply for an EIN right after you register your business. That fits the order above. Form first, EIN second.

What comes after your EIN

Getting the number is not the end of the federal duties. Three things may follow.

A single-member LLC must use its name and EIN for reporting and payment of employment taxes. The owner's own number will not do for this.

A single-member LLC must use its name and EIN to register for excise tax activities on Form 637. It must also use its name and EIN to claim refunds, credits and payments on Form 8849.

FinCEN's FAQs say U.S. companies are exempt from Beneficial Ownership Information reporting requirements under the new rule.

Changes, theft and next steps

In general you need a new EIN when your business's ownership or structure changes. But an EIN cannot be canceled, because it is an assigned, permanent federal ID number.

What if someone requested an EIN for your business without your knowledge? The IRS recommends confirming an unexpected EIN notice was not a legitimate request made on your behalf. If not, report an EIN you did not request using the IRS's Business Identity Theft Affidavit. Then follow the IRS's steps to report business identity theft if your EIN was stolen.

Your next steps are short. Form the LLC with your state. Learn your default classification. Get your EIN free from the IRS. Then keep up with the federal duties that follow. If you formed in Colorado, see the state's Periodic Report.