LLC Taxed as C-Corp: Complete Guide to Form 8832 Election

Key Takeaways:

Any LLC can elect to be taxed as a C-Corporation by filing Form 8832 with the IRS

Election preserves your LLC’s liability protection while gaining C-Corp tax treatment

Useful for QSBS planning, VC fundraising, fringe benefits, and reinvesting profits at 21% rate

Form 8832 (Entity Classification Election) must be filed within 75 days before or 12 months after desired effective date

Once elected, you cannot change back for 60 months without IRS consent

LLC taxed as C-Corp still files Form 1120 just like an incorporated C-Corporation

QSBS benefits available: Under OBBBA 2025, exclude up to $15 million in capital gains with tiered holding periods starting at 3 years

Your LLC doesn’t have to remain a disregarded entity or partnership for tax purposes. With a single IRS form, you can elect C-Corporation taxation—and access benefits like QSBS tax exclusions that could save you millions on a future exit.

This guide covers everything you need to know about electing C-Corp taxation for your LLC: when it makes sense, how to file the election, what changes for your tax compliance, and critical planning considerations before you make this often-permanent decision.

Whether you’re a startup founder planning to raise venture capital, a business owner eyeing QSBS benefits, or simply exploring whether the 21% corporate rate beats your individual tax bracket, understanding the LLC-to-C-Corp taxation election is essential knowledge for choosing the right business structure.

Can an LLC Be Taxed as a C-Corporation?

Yes—any LLC can elect to be taxed as a C-Corporation. This is one of the most flexible aspects of the LLC structure. The IRS treats LLCs as “check-the-box” entities, meaning you choose how you want to be taxed.

Default LLC Tax Treatment

Without any election:

Single-member LLC: Treated as a “disregarded entity” (sole proprietorship for tax purposes)
Multi-member LLC: Treated as a partnership

Both default treatments mean pass-through taxation—income flows to your personal return and you pay tax at individual rates (up to 37% federal).

Available Tax Elections for LLCs

Your LLC can elect to be taxed as:

S-Corporation (via Form 2553)
C-Corporation (via Form 8832)

The C-Corp election fundamentally changes how your business income is taxed. Instead of pass-through treatment, your LLC becomes a separate tax entity paying the flat 21% corporate rate on its profits.

What the Election Changes (and Doesn’t Change)

Changes:

Tax filing requirement: Form 1120 (Corporate Income Tax Return)
Tax rate: Flat 21% on corporate income
Owner compensation: Must receive W-2 wages
Dividend taxation: Double taxation on distributions
QSBS eligibility: Now qualifies under Section 1202

Doesn’t Change:

Legal structure: Still an LLC under state law
Liability protection: Members still have limited liability
Operating agreement: Remains in effect
Registered agent requirements: Still apply

Why Elect C-Corp Taxation for Your LLC?

Making the C-Corp election isn’t right for most small businesses. Double taxation and the loss of pass-through benefits mean S-Corp or default LLC treatment is usually better. But in specific situations, C-Corp taxation provides significant advantages.

QSBS Tax Exclusion (The Big One)

Section 1202 Qualified Small Business Stock allows founders and investors to exclude capital gains when selling C-Corp stock. Under the One Big Beautiful Bill Act (OBBBA) signed July 4, 2025, these benefits are now even more valuable.

OBBBA QSBS Benefits (stock issued after July 4, 2025):

Benefit	Pre-OBBBA	Post-OBBBA
Maximum exclusion	$10 million	$15 million (indexed for inflation after 2026)
Gross asset threshold	$50 million	$75 million (indexed for inflation)
100% exclusion holding period	5+ years	5+ years
75% exclusion holding period	N/A	4+ years
50% exclusion holding period	N/A	3+ years

Why this matters: If you sell your business for $15 million in capital gains and meet QSBS requirements, you could pay zero federal income tax on that gain. That’s $3.57 million in tax savings at the 23.8% long-term capital gains rate (including NIIT).

An LLC taxed as a C-Corp can qualify for QSBS. The election must be in place when the stock is issued, and the 5-year holding period clock starts from that point.

For the complete requirements and planning strategies, see our QSBS guide.

Venture Capital Fundraising

Most VCs require C-Corp structure for their portfolio companies. Here’s why:

Preferred stock classes: VCs typically want preferred stock with liquidation preferences, anti-dilution provisions, and conversion rights. C-Corps allow multiple stock classes; S-Corps do not.

QSBS for investors: VCs want QSBS benefits on their investments. This requires C-Corp taxation.

Clean cap tables: Standard VC deal documents are built for Delaware C-Corps. LLC operating agreements require more customization.

Exit flexibility: C-Corps can more easily pursue IPOs or acquisitions by other C-Corps.

If you’re raising institutional capital, an LLC with C-Corp election works—but many VCs will ask you to convert to an actual corporation anyway for cleaner documentation. The election can serve as a bridge while you’re pre-funding.

The 21% Flat Rate Advantage

C-Corporations pay a flat 21% federal tax rate on all taxable income. Compare that to individual rates:

Taxable Income	Individual Rate	C-Corp Rate
$44,725 – $95,375	22%	21%
$95,375 – $191,950	24%	21%
$191,950 – $243,725	32%	21%
$243,725 – $609,350	35%	21%
Over $609,350	37%	21%

The catch: This advantage only works if you’re reinvesting profits rather than distributing them. The moment you take a dividend, double taxation kicks in and the math changes dramatically.

When the 21% rate makes sense:

Growth companies reinvesting all profits
Businesses building value for a future QSBS exit
Owners who don’t need current distributions
Situations where corporate cash will fund expansion, not owner lifestyle

Enhanced Fringe Benefits

C-Corp shareholders who work in the business can receive tax-advantaged fringe benefits that aren’t available (or are limited) for S-Corp shareholders and partners.

Health Insurance

C-Corp: Corporation pays premiums, fully deductible to the company, tax-free to the employee-owner
S-Corp: Premiums for >2% shareholders are deductible but included in W-2 wages (taxed as income)

Group Term Life Insurance

C-Corp: Up to $50,000 coverage is tax-free to employee-owners
S-Corp: Coverage for >2% shareholders is fully taxable

Disability Insurance

C-Corp: Corporation-paid premiums can be structured as tax-free benefit
S-Corp: Limited planning flexibility for >2% shareholders

Medical Reimbursement Plans

C-Corp: Can provide self-insured medical reimbursement arrangements
S-Corp: Restricted options for >2% shareholders

For businesses with significant health costs or owners wanting comprehensive benefits packages, C-Corp taxation provides planning opportunities not available with pass-through entities.

Foreign Shareholders

S-Corporations cannot have foreign shareholders. If your business has or will have non-US investors or co-founders:

S-Corp: Not an option
C-Corp or LLC taxed as C-Corp: Works fine

This is common in tech startups with international founding teams or businesses raising capital from foreign investors.

How to Elect C-Corp Taxation for Your LLC

Step 1: File Form 8832 (Entity Classification Election)

Form 8832 is the IRS form for changing your LLC’s default tax classification. The form is straightforward but has specific requirements.

Key Form 8832 elements:

Part I: Identifies your LLC’s EIN, name, and address
Part I, Line 6: Check the box for “A domestic eligible entity electing to be classified as an association taxable as a corporation”
Part I, Line 7: Specify the effective date of election
Part II: Signature by authorized person

Who signs: An authorized member or manager. For single-member LLCs, the sole member signs. For multi-member LLCs, any member authorized by the operating agreement can sign.

Step 2: Timing Requirements

The effective date of your C-Corp election must fall within a specific window:

Looking forward: Up to 75 days before the date you file Form 8832

Looking backward: Up to 12 months before the date you file Form 8832 (with limitations)

Example:

If you file Form 8832 on March 15, 2026
Earliest effective date: December 30, 2025 (75 days prior)
Latest effective date (looking back): March 15, 2025 (12 months prior)

For new LLCs: File Form 8832 within 75 days of formation to have C-Corp taxation from day one. This is critical for QSBS planning—the holding period starts when stock is issued, and you want that to be as early as possible.

Step 3: Late Election Relief

If you missed the timing window, the IRS provides relief for late elections under Revenue Procedure 2009-41. You must:

Have reasonable cause for the late filing
Have acted as if the election was in place (filed corporate returns, etc.)
File Form 8832 with a statement explaining the delay

Late election relief isn’t guaranteed, but the IRS grants it routinely when taxpayers have behaved consistently with the intended election.

Step 4: New Compliance Requirements

Once your C-Corp election takes effect, your LLC has new tax obligations:

Annual return: Form 1120, due April 15 for calendar-year corporations (or 15th day of 4th month after fiscal year-end). See our C-Corp filing deadlines guide for complete details.

Estimated tax payments: Quarterly estimated taxes due April 15, June 15, September 15, and December 15 if you expect to owe $500 or more.

Payroll: Owner-employees must receive W-2 wages with payroll tax withholding. No more self-employment tax on owner draws—but you now have employer payroll obligations.

State requirements: Depending on your state, you may have additional franchise tax, annual report, or corporate filing requirements.

LLC Taxed as C-Corp vs. Actual Corporation: What’s the Difference?

From a federal income tax perspective, an LLC taxed as a C-Corp is treated identically to an incorporated C-Corporation. Both file Form 1120 and pay the 21% corporate rate. But there are differences.

Comparison Table

Factor	LLC (C-Corp Election)	Incorporated C-Corp
Federal tax treatment	Same (Form 1120, 21% rate)	Same
QSBS eligibility	Yes	Yes
State law entity	LLC	Corporation
Liability protection	LLC statutes (varies by state)	Corporate statutes
Operating document	Operating agreement	Bylaws + articles
Ownership documentation	Membership interests	Stock certificates
Board requirements	Typically none (flexible)	Usually required
Annual meeting requirements	Typically flexible	Often mandatory
VC/investor familiarity	Less common	Standard expectation
M&A documentation	May need customization	Standard templates

When the LLC Structure May Cause Issues

Raising institutional capital: VCs are accustomed to Delaware C-Corps with standard corporate documents. An LLC with C-Corp election works legally, but investors may ask you to convert to a corporation for cleaner documentation.

Acquisition by public company: Public company acquirers typically prefer acquiring corporations. LLC interests may complicate the deal structure.

IPO: Going public as an LLC taxed as a C-Corp is technically possible but adds complexity. Most companies convert to corporations before IPO.

When LLC Structure Has Advantages

Flexibility: LLC operating agreements can provide more flexibility than corporate bylaws for things like profit allocation, voting rights, and member duties.

Privacy: In some states, LLC member information isn’t public, while shareholder lists may be.

Conversion option: You can always convert the LLC to a corporation later if needed, without changing the tax treatment (already C-Corp for tax purposes).

For startups planning to raise venture capital, starting as an LLC with C-Corp election and converting to a Delaware corporation at the time of funding is a reasonable approach.

QSBS Planning for LLCs Electing C-Corp Taxation

If QSBS is your primary reason for electing C-Corp taxation, here are the key planning considerations:

Timing the Election

For new businesses: Elect C-Corp taxation from day one. File Form 8832 within 75 days of LLC formation. The QSBS holding period starts when stock is issued, so earlier is better.

For existing LLCs: The holding period starts when the C-Corp election becomes effective, not when the LLC was formed. An LLC that’s been operating for 5 years and then elects C-Corp taxation doesn’t get credit for those 5 years—the QSBS clock resets.

Meeting the QSBS Requirements

To qualify for Section 1202 exclusion, your LLC taxed as a C-Corp must:

Be a domestic C-Corporation (✓ – the election accomplishes this)
Have gross assets under $75 million (OBBBA raised this from $50M) at all times from August 10, 1993 through stock issuance
Operate an active trade or business (not just holding investments)
Avoid excluded businesses: Professional services (health, law, accounting, etc.), banking, insurance, farming, mining, hospitality
Stock must be acquired at original issuance for cash, property, or services

The 80% Active Business Test

At least 80% of your C-Corp’s assets must be used in the active conduct of a qualified trade or business. This can become an issue for:

Companies holding significant cash reserves
Businesses with investment portfolios
Companies with passive rental income

If you’re planning for QSBS, structure the business to meet this active business test throughout the holding period.

OBBBA’s Tiered Holding Periods

For stock issued after July 4, 2025, OBBBA introduced tiered exclusions:

3+ years holding: 50% exclusion (pay tax on other 50%)
4+ years holding: 75% exclusion
5+ years holding: 100% exclusion (zero federal tax on gain)

This creates planning flexibility. If you need to sell before 5 years, you still get partial exclusion. But full exclusion still requires 5+ years.

For stock issued before July 4, 2025, the old rules apply: 5+ years required for any exclusion.

Learn more in our complete QSBS guide.

Can You Switch Back to Pass-Through Taxation?

Yes, but the IRS imposes a 60-month waiting period.

The 60-Month Rule

Once you elect C-Corp taxation via Form 8832, you cannot elect a different classification for the same entity for 60 months (5 years) without IRS consent.

Example:

LLC elects C-Corp taxation effective January 1, 2026
Earliest you can elect S-Corp or return to pass-through: January 1, 2031

The IRS may consent to an earlier change if more than 50% of the ownership interests are owned by persons who didn’t own any interests when the original election was made.

Practically, this means if you sell a majority of the LLC or bring in new majority owners, the new owners could potentially elect different treatment.

Alternative: Elect S-Corp Instead

If you want to exit C-Corp taxation before 60 months and don’t qualify for early consent, you can elect S-Corporation status (if eligible) via Form 2553.

The S-Corp election is a separate election from the entity classification election. However, you’ll face:

Built-in gains tax on appreciated assets (5-year recognition period)
E&P tracking requirements from C-Corp years
Potential loss of QSBS benefits (S-Corps don’t qualify)

Planning Consideration: Be Sure Before You Elect

The 60-month rule makes this decision significant. Before electing C-Corp taxation:

Model the tax impact for different scenarios
Consider your realistic need for distributions
Evaluate whether QSBS or VC fundraising are likely paths
Understand you’re committing to at least 5 years of this structure

State Tax Considerations

States with Corporate Income Tax

Most states tax C-Corporations on income attributable to that state. Your LLC taxed as a C-Corp will owe state corporate income tax in addition to federal tax.

State corporate tax rates range from 0% (Nevada, Wyoming, South Dakota) to over 10% (New Jersey at 11.5% for large corporations).

Franchise Taxes

Some states impose franchise taxes on entities doing business in the state. These vary widely:

Texas: No corporate income tax, but imposes a franchise tax (margin tax) on entities with over $2.47 million in total revenue. The tax is 0.375% to 0.75% depending on business type.

Delaware: Annual franchise tax based on authorized shares or assumed par value capital method. Can range from $175 to over $200,000 for large corporations.

California: $800 minimum franchise tax plus 8.84% corporate income tax.

Nexus Considerations

Your LLC taxed as C-Corp may have state filing obligations in multiple states if you have:

Physical presence (office, employees, inventory)
Economic nexus (sales above threshold)
Registered to do business in the state

Each state determines corporate income tax apportionment based on various factors (sales, payroll, property).

Frequently Asked Questions

Can any LLC elect to be taxed as a C-Corporation?

Yes. Any domestic LLC can elect C-Corporation taxation by filing Form 8832 with the IRS. This applies to single-member LLCs, multi-member LLCs, and LLCs in any state. The election changes only the federal tax treatment—your LLC remains an LLC under state law.

How do I file Form 8832 to elect C-Corp taxation?

File Form 8832 (Entity Classification Election) with the IRS. Check the box indicating you want to be classified as an association taxable as a corporation. Specify your desired effective date and have an authorized member sign. Mail to the IRS address listed in the form instructions. There’s no filing fee.

When does C-Corp taxation become effective after filing Form 8832?

You choose the effective date. It must be within 75 days before you file or up to 12 months after you file. For new LLCs wanting C-Corp taxation from inception, file Form 8832 within 75 days of formation.

Can an LLC taxed as a C-Corp qualify for QSBS?

Yes. An LLC that has elected C-Corp taxation can qualify for Section 1202 QSBS treatment if it meets all other requirements: gross assets under $75 million (OBBBA threshold), active business requirement, and excluded business rules. The holding period starts when the C-Corp election becomes effective and stock is issued.

What’s the difference between an LLC taxed as C-Corp and an actual corporation?

For federal income tax purposes, they’re identical—both file Form 1120 and pay 21% corporate tax. The differences are at the state law level: an LLC has an operating agreement instead of bylaws, membership interests instead of stock, and different governance requirements. Some investors prefer actual corporations for standardized documentation.

Can I change back to pass-through taxation after electing C-Corp?

You cannot change your entity classification for 60 months without IRS consent. You can potentially elect S-Corporation status via Form 2553 (separate election), but this triggers built-in gains tax and E&P tracking requirements. The 60-month rule makes this a significant commitment.

Should my startup elect C-Corp taxation?

Consider C-Corp election if you’re raising venture capital, planning for QSBS benefits on exit, reinvesting all profits at the 21% rate, or have foreign co-founders/investors. Don’t elect C-Corp if you need regular distributions (double taxation applies), want the QBI deduction (C-Corps don’t qualify), or want business losses to offset personal income.

How do I pay myself from an LLC taxed as a C-Corp?

As an LLC taxed as a C-Corp, you must receive W-2 wages for any work you do in the business. You’ll need to set up payroll, withhold employment taxes, and file payroll returns. Distributions beyond wages are treated as dividends (taxed a second time to you). This is the same as any other C-Corporation.

Next Steps: Is C-Corp Taxation Right for Your LLC?

Electing C-Corp taxation for your LLC is a significant decision with long-term implications. The 60-month rule means you’re committing to at least 5 years of this structure, and the tax consequences affect both current operations and future exit planning.

C-Corp election typically makes sense when:

You’re pursuing QSBS benefits (potential millions in tax-free gains)
You’re raising or planning to raise venture capital
You’re reinvesting all profits at 21% rather than taking distributions
You have or expect foreign shareholders
Fringe benefits are a significant consideration

C-Corp election typically doesn’t make sense when:

You need regular distributions (double taxation costs 36-40%)
You want the QBI deduction (saves up to 20%)
You want business losses to offset personal income
You’re a small service business without exit/fundraising plans

Before making this election, work with a CPA who can model your specific tax situation under different scenarios. The right choice depends on your income level, distribution needs, growth plans, and exit strategy.

For C-Corporation tax services or help evaluating whether C-Corp taxation is right for your LLC, schedule a consultation to review your specific situation.

Related Resources:

C-Corporation Tax Guide – Complete overview of C-Corp taxation
QSBS Guide – Section 1202 exclusion requirements and planning
C-Corp vs S-Corp Tax Comparison – Detailed entity comparison
Business Entity Tax Guide – Full entity selection framework
C-Corp to S-Corp Conversion – Changing your entity election

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