Structures
Legal structure and tax classification are two different decisions
Your state filing creates the legal entity; federal tax rules separately decide how that entity reports income.
When you form an LLC or corporation, the state recognizes a legal entity with its own name, records and owner protections. That is a state-law question. How the business is taxed is a separate federal question.
For federal purposes, an LLC with one owner is generally treated as disregarded from its owner, and a domestic LLC with two or more members is generally treated as a partnership, unless the LLC files an election to be classified differently. Employment taxes and certain excise taxes can still treat a disregarded LLC as its own taxpayer.
Married owners in community-property states have a narrow exception in IRS guidance. It is not a general rule for any two owners.
Checklist
- Write down how many owners the business has today
- Ask your tax professional which default classification applies
- Decide whether any election is worth reviewing, and when
- Keep your formation and election paperwork together
Common misconceptions
- Myth: Forming an LLC sets my tax treatment automatically and permanently.
- Reality: Default rules apply, but an eligible LLC may elect another classification, and owner changes can change the default.